Speculation Heats Up on JDS Uniphase Corporation Ahead of Earnings

The latest earnings report from JDS Uniphase Corporation (JDSU) is due to hit the Street after today's closing bell, with analysts expecting the company to report a fiscal first-quarter profit of roughly 2 cents per share. JDSU has a solid history in the earnings spotlight, having exceeded analysts' consensus profit estimates in each of the previous four reporting periods.

Judging by recent option activity, many speculators are betting on another upside surprise tonight. During the past five days, traders on the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE) have bought to open 7,239 calls on JDSU, compared to just 416 puts.

In fact, the stock's 10-day ISE/CBOE call/put volume ratio of 9.04 ranks higher than 75% of other such readings taken during the past year, revealing a growing preference for bullish bets over their bearish counterparts.

However, not everyone is feeling confident enough to predict the security's post-earnings direction. Hidden among today's option volume is a small, intermediate-term straddle on JDSU, with the trader purchasing 40 contracts apiece on the stock's at-the-money March 6 put and March 6 call.

By avoiding the front-month series, the speculator in this scenario is saving a bit of cash on implied volatility. JDSU's November 6 put carries implied volatility of 71.5%, while the comparable call weighs in at 77.7% -- far outpacing the stock's one-month historical volatility of 38%. By contrast, implied volatility on their March-dated counterparts is hovering near 60%. But, because the March options carry so much more time value, they're currently more than twice as expensive as the November-dated contracts.

Meanwhile, on the charts, JDSU is up 4.3% ahead of tonight's report. The stock recently breached support from its 20-week moving average, which could now potentially switch roles to act as resistance.

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