Heavy Unusual Call Option Activity In Chip Designer Arm Holdings Plc - Are Investors Still Bullish?

A Barchart report today shows unusually heavy call option trading in Arm Holdings Plc (ARM), an advanced semiconductor chip designer. Despite today's chip stock selloff, is this bullish, or are some stockholders selling covered calls?

ARM is up slightly today at $256.79, despite the chip-stock turbulence. However, in the last three weeks, it has dropped from a Sept. 22 peak of $333.20. In effect, it has been flat over the last three months, as the Barchart chart below shows.

ARM stock - last 3 months - Barchart - Oct. 13, 2026

This could be positioning ahead of the upcoming Nov. 4 fiscal Q2 earnings report date for the quarter ending Sept. 30. Nevertheless, analysts have significantly higher price targets (PTs) for ARM stock. 

For example, Yahoo! Finance's survey of 43 analysts shows an average PT of $290.70. Similarly, Barchart's mean analyst survey PT is $292.72. These imply upside of 13.6% in ARM.

Moreover, analysts forecast 23% revenue growth this year (to the year ending March 2027) at $6.06 billion, and 36% next year ($8.25 billion). Moreover, free cash flow (FCF) soared last quarter to $705 million, representing 54.69% of revenue.

If this keeps up during Q2 and for all of this FY, FCF could reach $3.31 billion (i.e., $6.06b x 0.5469) this year and $4.51 billion next FY. That is why ARM stock does not necessarily look overvalued.

For example, using a 1.0% FCF yield metric and applying it to the next 12-month (NTM) forecast of $3.91 billion, Arm Holdings could be worth $391 billion (i.e., $3.91b / 0.01).

Even at a 1.25% FCF yield, the stock is worth $312.8 billion, or 13.84% over today's market cap of $274.78 billion.

That leads to a price target of $292.33 (i.e., 1.1384 x $256.79 price today). That's why analysts have set their PTs at this level. Howewer, next year, it could be worth even more, especially if its higher revenue estimates come into focus.

For example, FY 28 $4.51 billion FCF / 0.0125 = $360.8 billion fair value. That is 31.3% higher than today's market cap, leading to a PT of $337.17.

That could be why some investors are willing to buy unusual volumes of out-of-the-money call options at $330, and some investors are selling at this price.

Unusual Call Options Activity in ARM

Barchart's Unusual Stock Options Activity Report today shows that almost 21,000 call options have traded at a $330 strike price for expiry on Dec. 18, 2026. That's 66 days from now and would include any upgraded price targets after the company's upcoming fiscal Q2 earnings and FCF report.

This volume is almost 20x the prior number of calls outstanding at that price. Moreover, the call premium is $7.46, so investors buying these calls may expect to see ARM rise to over $337.46. (Note: this is close to our PT of $337.17 shown above).

ARM call expiring Dec. 18 - Barchart Unusual Stock Options Activity Report - As of Oct. 13, 2026

On the other hand, it is very likely that some existing shareholders are willing to sell their shares at this strike price. They are happy to receive $7.46 in premium now for the obligation to sell at $330 in just over 2 months. 

In effect, the covered call yield is high at 2.91% (i.e., $7.46/$256.79). On an annualized basis, if this can be repeated every two months, the effective yield is 17.43%, a very attractive expected return.

So, does this mean investors are still bullish on ARM? Maybe. But not necessarily. The call option seller could be doing a multi-leg trade where they are booking a call credit spread. It could also be offsetting a different leg. 

But some investor, even if it is the bookmaker or brokerage firm, has to be buying these out-of-the-money calls. As I have shown, there is some basis for ARM stock to move higher and approach this call option strike price.

The bottom line is the upcoming Nov. 4 earnings release is very important. If it shows that the company's free cash flow (FCF) is staying strong and FCF margins are over 50%, ARM stock could indeed move higher. 

In effect, analysts' higher PTs will be vindicated and could even rise. That would push ARM stock up.