Netgear (NASDAQ:NTGR), a computer networking company, appears to have the potential for a revival despite its recent setbacks. In a rapidly digitalizing society, one would expect such a company to thrive. However, competitive pressures and disappointing financial performances have taken a toll on NTGR stock, causing it to lose nearly 30% of its equity value since the start of the year and over 42% in the past year.
Despite these challenges, some contrarians see an opportunity for NTGR stock to make a comeback. On May 9, Zacks Equity Research, a Barchart content partner, pointed out that the stock had declined by 24.7% over the past four weeks, potentially positioning it for a trend reversal as it entered oversold territory.
Additionally, Zacks noted that Wall Street analysts were increasingly optimistic about Netgear’s earnings prospects. However, when the company released its second-quarter results, the market remained unimpressed, even though the figures exceeded expectations.
Unusual options activity has also drawn attention to NTGR stock. It ranked among the top highlights in Barchart’s screener for unusual options activity, with a total volume of 3,498 contracts compared to open interest of 7,505 contracts. This represented a significant increase in volume compared to the trailing one-month average.
The breakdown of transactions revealed a call volume of 3,401 contracts against put volume of 97 contracts, resulting in a put/call ratio favoring the bulls. However, the put/call open interest ratio was notably high at 1.44, creating some ambiguity.
Notably, on September 14, December 15, 2023, $15.00 Call option saw substantial activity, with 3,094 contracts traded and open interest of 66 contracts, indicating a potential surge in demand.
Furthermore, Fintel’s screener for options flow, which filters for large block trades typically made by institutions, identified a single transaction of 3,000 contracts for the same option, suggesting that a single institutional investor accounted for a significant portion of the unusual volume.
The mathematics behind the options transactions also favored a bullish interpretation. Despite a decline in implied volatility (IV) from September 5 to September 14, the delta increased during the same period. This indicated that the premium for the $15 call option had decreased while its relationship to the underlying stock had strengthened, making it an attractive buy.
In essence, an institutional investor recognized the improved probability of the call option going in the money (ITM) while its price decreased, making it a sensible purchase.
While NTGR stock has been frustrating for many investors, these recent developments suggest that it may be poised for a positive turnaround, potentially delighting contrarian bulls.
Featured Image: Freepik @ mirexon
