by Houghton and Atkeson 05/15/08
Emcore Corp. (EMKR) is mostly a semiconductor company serving the broadband, fiber optic market that also has a small, emerging photovoltaic (i.e., solar power) division.
Semiconductor and solar-power companies trade at different earnings multiples. Recently, solar companies have traded at a very substantial premium to semiconductor companies.
Emcore's solar business is steadily becoming a much-larger percentage of overall revenues. On May 7, company management decided to expose its solar business by announcing a plan for the separation of its Fiber Optics and Photovoltaic businesses into separate corporations.
With the stock down more than 40% year-to-date, call buyers began to emerge in the middle of April. Call buying hit a crescendo on May 7, with investors buying more than 6,000 of the EMKR Sept 12.50 Calls (EQBIV). Yesterday, options investors were buying the EMKR June 10 Calls (EQBFB) almost 2,000 times. Open interest for all EMKR calls is now upward of 50,000 contracts, versus a total of just over 13,000 puts open.
As the company's solar business continues to have the light of day shine on it, these option investors are looking for 25% to 70% appreciation in the stock by fall.
For more fresh options trading ideas from Andrew and Nick, click here.
