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Adobe Systems Option Bears Active Ahead of Earnings

ADBE put buying has accelerated over the past two weeks

by 9/18/2012 1:43 PM
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Options volume is picking up steam on Adobe Systems Incorporated (NASDAQ:ADBE - 32.85), especially on the put side of the tape. At last look, the security has seen more than 6,400 puts change hands -- more than four times its average intraday put volume. Meanwhile, around 5,900 ADBE calls have traded thus far, compared to its typical afternoon volume of roughly 1,500 calls.

Upon closer inspection, investors have taken a shine to ADBE's short-term, 33-strike puts. Specifically, about 1,400 September 33 puts and more than 1,600 October 33 puts have crossed the tape. Implied volatility was last seen higher at both strikes, but the majority of the puts have traded between the bid and ask prices, making it difficult to discern whether they're being bought or sold.

If recent history is any indicator, though, the investors are likely purchasing the puts to open. In fact, during the past 10 sessions, ADBE has racked up a put/call volume ratio of 1.39 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Compared to similar readings of the past year, this ratio registers in the 66th percentile, implying that option buyers have initiated bearish bets over bullish at a much faster-than-usual clip.

Echoing that skepticism, 15 out of 24 analysts consider ADBE a "hold" or worse. Likewise, the consensus 12-month price target on the stock sits at $35.18, representing a premium of just 5.3% to ADBE's closing price of $33.41 on Monday.

Nevertheless, there's still plenty of room in the pessimists' camp. The security's Schaeffer's put/call open interest ratio (SOIR) of 0.83 indicates that calls outnumber puts among options expiring within three months. Furthermore, this ratio ranks in the 20th annual percentile, suggesting short-term options players are still more call-skewed than usual.

In afternoon trading, the shares of ADBE have given up 1.7% to linger in the $32.85 vicinity. From a longer-term standpoint, the equity has spent most of 2012 between support at its 50-week moving average -- currently docked in the $31 region -- and resistance in the $34 neighborhood. However, the security could soon break free of its trading range -- in one direction or another -- depending on ADBE's quarterly earnings report, slated to hit the Street after the closing bell tomorrow. According to Thomson Reuters, the company has matched or exceeded analysts' per-share profit projections in each of the past four quarters.


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