STMicroelectronics (STM: sentiment, chart, options) is set to have a rough start to the morning, after UBS cut its rating on semiconductor giant from "neutral" to "sell," saying it sees a significant risk that the company could miss its fourth-quarter guidance on revenue. The broker told clients it expects STM to be loss-making in 2009 for the first time since 1992. The key reasons for the loss, UBS said, is the lack of a significant cost-reduction program so far, under-utilization and tougher pricing. Adding to the stock's woes, JP Morgan also said in a note to clients that it believes STM could warn in the fourth quarter.

The shares of STM are set to gap lower on the open following the negative brokerage comments. This gap would put the security below key short-term support at the 6.50 level, and could send the shares back for another test of support at the 6 level.

Overall, Wall Street is relatively skeptical of the shares. The stock has earned 3 "buy" ratings, 3 "holds," and 2 "sells." However, there is still room for additional downgrades should the company cut its outlook as expected.

Meanwhile, options players are betting on a bounce. The Schaeffer's put/call open interest ratio (SOIR) for STM stands at 0.13, as call open interest easily outweighs put open interest among near-term options. This reading is also lower than 80% of the readings taken during the past year. This wealth of optimism on an underperforming stock has bearish implications from a contrarian perspective.