AAOI Plunges 13% Amid Earnings Disappointment and Insider Selling – Is This the Bottom?

Summary
• AAOI’s stock nosedives 11.17% intraday to $23.21, its lowest since 2023.
• Earnings report misses estimates by $0.08, with revenue growth slowing to 137.9% YoY.
• Insider Hung-Lun Chang sells 15,784 shares at $22.70, while director William Yeh buys 4,000 shares at $21.40.

Applied Optoelectronics (AAOI) is under siege as a sharp earnings miss, insider selling, and bearish technical signals collide. The stock’s 11.17% intraday drop—its worst in years—has triggered a scramble among traders to assess whether this selloff is a buying opportunity or a deeper crisis. With the stock trading near its 52-week low of $8.43 and key support levels in play, the next 48 hours could define its near-term trajectory.

Earnings Miss and Insider Selling Trigger Sharp Selloff
The collapse in AAOI’s stock price is rooted in a combination of weak earnings and divergent insider activity. The company reported Q2 earnings of -$0.16 per share, missing estimates by -$0.08, while revenue of $102.95M fell short of the $104.96M consensus. This follows a 137.9% YoY revenue surge, but analysts now question the sustainability of growth amid a challenging macroeconomic environment. Compounding the issue, insider Hung-Lun Chang sold 15,784 shares at $22.70, signaling a lack of confidence, while director William Yeh’s $85,600 purchase at $21.40 failed to stabilize sentiment. The stock’s 8.7% drop to $21.01 post-earnings has accelerated the selloff, with traders interpreting the move as a bearish confirmation.

Communication Equipment Sector Diverges as AAOI Crumbles Amid Earnings Woes
While the broader Communication Equipment sector remains mixed, AAOI’s performance starkly contrasts with its peers. Sector leader Cisco Systems (CSCO) rose 0.19% intraday, buoyed by stable guidance and AI infrastructure demand. However, AAOI’s 11.17% drop has left it trailing the sector, with its -7.02 P/E ratio and 2.72 beta amplifying volatility. Analysts note that AAOI’s reliance on niche optical networking products and its recent earnings miss have isolated it from the sector’s more diversified players, such as Cisco and Juniper Networks.

Bearish Options and ETFs Emerge as Key Plays Amid AAOI’s Volatility
• 200-day average: 23.80 (near current price)
• RSI: 55.77 (neutral to bearish)
• MACD: -0.479 (bearish divergence)
• Bollinger Bands: Lower band at $19.48 (critical support)

AAOI’s technical profile suggests a continuation of the selloff, with key support at $23.80 (200-day MA) and $19.48 (lower Bollinger Band). Traders should monitor a breakdown below $23.80, which could trigger a test of the 52-week low. The stock’s 2.72 beta and -39.6 P/E ratio indicate heightened sensitivity to market shifts and earnings-driven volatility.

Top Options Plays:
• AAOI20250829P23 (Put, $23 strike, 2025-08-29):
- IV: 100.46% (elevated volatility)
- Leverage Ratio: 14.88% (high reward potential)
- Delta: -0.455 (moderate sensitivity to price moves)
- Theta: -0.0249 (moderate time decay)
- Gamma: 0.0985 (high sensitivity to gamma)
- Turnover: 8,713 (liquid contract)
- Payoff at 5% downside: $0.71 (max(0, 21.99 - 23) = 1.01).
This put option offers a high leverage ratio and strong gamma, making it ideal for a further decline. The elevated IV ensures the contract remains responsive to price swings.

• AAOI20250829P23.5 (Put, $23.5 strike, 2025-08-29):
- IV: 105.19% (very high volatility)
- Leverage Ratio: 12.14% (balanced risk/reward)
- Delta: -0.501 (strong sensitivity to price moves)
- Theta: -0.0233 (moderate time decay)
- Gamma: 0.0947 (high sensitivity to gamma)
- Turnover: 14,825 (high liquidity)
- Payoff at 5% downside: $1.51 (max(0, 21.99 - 23.5) = 1.51).
This contract’s high IV and liquidity make it a top choice for aggressive bears. The -0.501 delta ensures significant payoff potential if the stock breaks below $23.50.

Action Insight: Aggressive bears should prioritize AAOI20250829P23.5 into a breakdown below $23.50. Conservative traders may consider a short-term ETF play on the Communication Equipment sector (e.g., XLK) if AAOI’s selloff sparks broader sector weakness.

Backtest Applied Stock Performance
The backtest of AAU's performance after a -13% intraday plunge reveals a mixed short-to-medium-term outlook, highlighting the importance of careful intraday risk management. While the 3-day win rate is moderate at 48.78%, the 10-day win rate drops to 44.62%, and the 30-day win rate is slightly better at 41.89%, indicating that while AAU may bounce back within days, medium-term returns are more variable. The average 3-day return is 0.83%, with a maximum return of 11.49% on day 58, suggesting that while there is potential for recovery, returns are not consistently positive in the immediate aftermath of such a large intraday decline.

Bears Eye Key Support Levels as AAOI Faces Crucial Technical Test
AAOI’s 11.17% intraday drop has created a critical juncture for investors. The stock’s proximity to its 200-day MA ($23.80) and lower Bollinger Band ($19.48) suggests a potential continuation of the selloff, particularly if earnings-driven pessimism persists. With the Communication Equipment sector leader Cisco (CSCO) up 0.19%, AAOI’s divergence highlights its vulnerability to earnings-driven volatility. Traders should watch for a breakdown below $23.80, which could trigger a test of the 52-week low. For now, the bearish momentum and elevated options volatility point to a high-risk, high-reward environment. Watch for $23.80 breakdown or a rebound above $25.46 (upper Bollinger Band) to define the next move.