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ARM Pullback Draws Bulls

By Mike Yamamoto, managing editor of OptionMonster

NEW YORK -- ARM Holdings (ARMH) has pulled back sharply after a massive run, but bullish option traders came back to the U.K. chipmaker last week.

More than 4,000 July 35 calls traded in a strong buying pattern on Friday for premiums ranging from $1.78 and $2.10, according to optionMONSTER Heat Seeker tracking system. These are clearly new positions, as the open interest in the strike was just 47 contracts before the session began.

These calls, which lock in the price where traders can buy the stock, are betting that ARM shares will gain roughly 6% in the next month. But the options will rapidly lose value if the shares don't rally in coming weeks.

ARM's stock dropped 4.17% on Friday to finish the session at $35.17, continuing to decline from all-time highs reached last month. On Wednesday it closed below its 200-day moving average for the first since early September 2012. At that time the shares bounced off that level around $25 and then climbed all the way to $50.56 on May 16.

Total option volume in the name was 11,649 contracts, compared with a daily average of 6,814 in the last month. Calls outpaced puts by about 1.7 to 1.

Yamamoto has no positions in ARMH.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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