AMBA is a developer of semiconductor processing solutions for video that enable high-definition (HD), video capture, sharing and display. Ambarella (AMBA) has been a wild ride. They reported earnings earlier in the week and their results were quite impressive:
“Revenue from our existing wearable, IP security and automotive video recorder camera markets grew significantly in the quarter,” explained Ambarella CEO Fermi Wang, “and we saw solid growth from drones or flying cameras. We also closed on the purchase of VisLab S.r.l., which adds a strong development team as well as advanced intellectual property in computer vision technology.” During the subsequent conference call, however, Ambarella management stated revenue in the current quarter is expected to be between $90 million and $93 million, or a year-over-year increase of between 37% and 42%. Wall Street was expecting fiscal Q3 revenue of $92.3 million. According to Ambarella CFO George Laplante, that performance will be driven by growth in the automotive, IP security, and drone markets, and held back by expected sequential and year-over-year declines from the wearable camera segment. For the latter, Laplante blamed the timing of recent large product launches from customers including GroPro and Xiaomi. The market did not like that at all. Take a look at the chart:
This significant thing I saw here is that AMBA has only sniffed the 200-day moving average (the yellow line) three times in the past six months. Do I necessarily think that AMBA is going to shoot back up? Not really. But I do think there’s some strong evidence that the downside pressure is done with for now. So I constructed an asymmetrical iron condor. By asymmetrical I mean that the put side of the condor is closer to the money (more positive delta) than the call side (less negative delta). The signal was to sell the September 76/77.5/88/89 iron condor for a CREDIT of $0.90 or more. The more significant risk (by design) is to the downside. If AMBA goes below $76.00 we can lose a net of $0.60 ($1.50 wide put spread less the $0.90 of premium collected). We risk only a dime to the upside. If we go above 89 we lose $0.10 ($1.00 wide call spread less the $0.90 collected). The ideal place to be would be above $77.50 and below $88.00 at expiration.
