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Options Action

This beaten stock is surging. More room to run: Traders

Ambarella to soar?
Ambarella to soar?

Ambarella is surging.

Shares of the GoPro supplier were more than 7 percent higher midday Tuesday. The stock is now up 12 percent over the past two days, and some savvy traders are betting on even more gains for the beaten name.

"There have been about 50 percent more bullish bets than bearish [in the options market]," Mike Khouw said Monday on CNBC's "Fast Money." The semiconductor stock has been hit hard in recent months, falling more than 50 percent since the start of August. But according to Khouw, a flurry of bullish activity could spark a turnaround, at least in the very near term.

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Khouw noted that the most active strikes on the day Monday were buyers of the January 52.50 calls for an average purchasing price of $5.50. Since buying a call allows one the right to purchase a stock at a set time and price, these are bullish bets that Ambarella will rise above $58 by January expiration. That's a more than 4 percent rally from the current price of around $55.60.

"Bear in mind that the stock is currently trading around 15 times next 12-month earnings," added the co-founder of Optimize Advisors. "The stock was trading over $80 just a short time ago and that explains the high options price."

Wall Street tends to agree that Ambarella could have found a floor. According to FactSet, of the 12 analysts who cover the stock, the average price target is $98.45 — a remarkable 77 percent above the current stock price — with an overweight rating.