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Options Fly Following Juniper Networks Disappointment

Posted on the 27 July 2011 by Phil's Stock World @philstockworld

JNPR - Juniper Networks, Inc. – Investors are initiating diverse options strategies on the largest maker of Internet networking equipment today in the aftermath of an earnings miss that sent shares in Juniper Networks down more than 20.0% to a new 52-week low of $24.72. It looks like some traders are bracing for shares to extend losses, while other investors position for the stock to rebound. Meanwhile, investors holding previously established bullish and bearish positions on the stock may be throwing in the towel or taking profits off the table given the nosedive in the price of the underlying today. Call and put options on JNPR are by far the most active in the front month. Traders hoping to see shares recover are buying to open positions in out-of-the-money calls, with notable fresh interest building in the August $26 strike call. The closest to-the-money August $25 strike call chances hands more than 5,400 times by 1:30 pm ET, but trading traffic here is decidedly mixed as both sellers and buyers of the contracts made their mark. Calls at the August $28 strike are the most heavily traded, with upwards of 6,600 contracts having changed hands against open interest of 1,377 positions. Sellers of these options for an average premium of $0.18 a-pop cast doubt that Juniper’s shares will recover above $28.00 ahead of August expiration in a few weeks time. Open interest is substantial in deep out-of-the-money calls, which lost nearly all of their value overnight and today trade for a penny or two post-earnings. Near-term puts are active, as well. Buyers of the August $25 strike put paid an average premium of $1.12 each for some 1,500 contracts. Put buyers profit if shares in JNPR extend losses to trade beneath the lower breakeven price of $23.88 by expiration day next month. Finally, the heaviest put action up at the August $26 and $27 strikes may be the work of an investor taking profits on well-placed pre-earnings bearish positions.

IACI - IAC/InterActiveCorp. – Shares in the operator of and jumped 15.9% to a more than 7-year high of $43.80 after the company reported far better-than-expected results for the second quarter. Options volume on the operator of more than 50 websites popped following the earnings blowout as investors scrambled to position for continued bullish movement in the price of the underlying. Near-term optimists focused their attention on August contract calls, buying more than 1,600 contracts at the August $45 strike for an average premium of $0.48 each. Call buyers at this strike profit if shares rally 3.8% over today’s high of $43.80 to surpass the average breakeven price of $45.48 at expiration next month. The August $45 strike calls are the most active on the stock today, with more than 2,900 lots having changed hands against open interest of just 14 contracts. Bulls picked up another 425 calls up at the August $50 strike for an average premium of $0.09 each. Like-minded strategists shelled out premiums of $0.90 and $1.50 per contract for the right to purchase IAC stock at $45.00 come September and October expiration. Trading in call options on the website operator certainly outpaced that of puts, but put buyers did make an appearance on the options playing field during the session. Investors locking in gains or positioning for shares to pull back in the months ahead purchased fewer than 300 $40 strike puts expiring in August, September and October, at average premiums of $0.55, $0.73 and $1.05 per contract, respectively. All told, investors traded some 6,400 call and put options on the stock by 1:15 pm on the East Coast.

KMX - CarMax, Inc. – The retailer of used automobiles is weathering Wednesday’s pullback in equities far better than some of its competitors, although KMX shares too are on the decline today to stand 0.45% lower on the day at $32.99 as of 11:30 am ET. Rival AutoNation’s shares dropped as much as 5.1% earlier in the session to $37.94 despite reporting better-than-expected second-quarter earnings ahead of the bell this morning. Activity in CarMax put options suggests some bearish players expect the price of the underlying to continue to decline in the near term. Investors exchanged more than 5,500 puts at the August $31 strike against open interest of just 259 contracts. It looks like around 5,000 of the contracts were purchased at an average premium of $0.53 apiece. Put buyers profit if shares in KMX drop 7.6% from the current price of $32.99 to breach the average breakeven point on the downside at $30.47 by August expiration. Shares in CarMax last traded below $30.47 on June 21. The stock lost nearly 30% of its value between mid-February and early-June, dropping from a 52-week high of $37.02 down to a 6-month low of $26.37. The weeks leading up to and following second-quarter earnings from KMX on June 22 saw shares rebound to as high as $34.81 in July. Put buyers may profit if shares in CarMax surrender recent gains by expiration next month.

NWL - Newell Rubbermaid, Inc. – Second-quarter results from the global consumer products company are just two days away, and it looks like some investors are taking to the options market to position for shares in Newell Rubbermaid to rally. Shares in the marketer of brands, including Sharpie and Paper Mate, fell 2.8% to $14.68 in early-afternoon trade. Bullish strategists traded more than 2,700 calls at the August $15 strike this morning against previously existing open interest of 242 contracts. It looks like the bulk of the calls were purchased for an average premium of $0.55 a-pop. Call buyers profit in the event that NWL shares surge 5.9% to surpass the average breakeven price of $15.55 by expiration day in August. The overall reading of options implied volatility on the stock rose 15% to 37.95% by 12:10 am in New York trade. Newell Rubbermaid is slated to report earnings ahead of the opening bell on Friday.

Andrew Wilkinson
Senior Market Analyst
[email protected]

Caitlin Duffy
Equity Options Analyst

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Options Fly Following Juniper Networks Disappointment
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