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Bearish Betting Accelerates on Juniper Networks Ahead of Earnings

Speculators take a shine to JNPR's front-month puts

by 1/23/2013 2:00 PM
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Juniper Networks, Inc. (NYSE:JNPR - 21.32) is trading lower this afternoon, attracting a slew of bearish bettors. Roughly 21,000 puts have changed hands so far, which is 20 times the norm. By comparison, fewer than 1,300 calls have traded.

Most active has been the February 20 put, where 7,150 contracts have been exchanged -- a large portion of them at the ask price, suggesting they were bought. These out-of-the-money puts crossed at a volume-weighted average price (VWAP) of $0.38. Since today's volume exceeds current open interest levels -- coupled with the fact that implied volatility was last seen 3.6 percentage points higher -- it's very likely that new bearish bets are being placed here. Essentially, the put buyers are counting on the stock to fall south of breakeven at $19.62 (strike price less the VWAP) by the close on Feb. 15, which is when these front-month options expire.

Today's penchant for puts over calls is a deviation from JNPR's recent trend. The equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sits at 4.12, signaling calls bought to open have more than quadrupled puts during the past 10 weeks. In fact, this ratio is just 4 percentage points away from an annual high, meaning traders have rarely picked up calls over puts at a faster pace during the past year.

Taking into account today's near 1% decline, JNPR is still up about 8.4% year-to-date, and has outperformed the broader S&P 500 Index (SPX) by close to 22 percentage points over the last two months. What's more, the equity is on pace to close January atop its 20-month moving average -- a feat not accomplished since May 2011.

Also of note, the telecom equipment developer is scheduled to report fourth-quarter earnings after tomorrow's close, and has bested analysts' bottom-line projections in each of the past four quarters. Should JNPR pull off another earnings surprise, it could push today's bearish bets further out of the money.


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