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Ciena Speculators Shift Gears in the Options Pits

Optimistic traders target CIEN's April-dated calls

by 1/31/2013 1:02 PM
Stocks quoted in this article:

Bullish bettors have been descending upon Ciena Corporation (NASDAQ:CIEN - 15.55) in droves today, as roughly 17,000 calls have changed hands so far -- about 20 times the security's anticipated intraday call volume. By comparison, fewer than 1,800 puts have traded. Leading the pack has been the April 16 call, which has seen nearly 10,800 contracts cross the tape.

Digging deeper into the data, it appears that the bulk of these calls were exchanged at the ask price, suggesting they were purchased. What's more, today's volume exceeds current open interest levels, while implied volatility was last seen 3.8 percentage points higher -- both indications of buy-to-open activity. Because these contracts traded at a volume-weighted average price (VWAP) of $1.11, the stock must climb north of $17.11 (strike price plus VWAP) by April expiration in order for traders to realize a profit on their bullish bets. This breakeven rail represents a 10% increase over current levels.

This surge in put activity flies in the face of CIEN's most recent trend. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at 1.54, confirming traders have bought to open 154 puts for every 100 calls during the last couple of weeks. This ratio ranks higher than 82% of comparable readings taken within the past year, meaning speculators have been scooping up puts over calls at a faster-than-usual pace.

Similarly, Schaeffer's put/call open interest ratio (SOIR) for CIEN checks in at 1.88, with puts almost doubling calls among options with a shelf life of three months or less. This ratio is just 10 percentage points shy of a yearly peak, conveying near-term traders have rarely been more put-heavy toward the stock during the last 12 months.

This generally bearish attitude toward the networking equipment provider isn't unfounded, as CIEN sits about 1% below breakeven year-to-date, and has trailed the broader S&P 500 Index (SPX) by close to 14 percentage points during the past 20 sessions. Nevertheless, should the shares fail to achieve the aforementioned bulls' lofty goal by the close on Friday, April 19, the most they stand to lose is the initial premium paid for their call purchases.

At last check, CIEN has climbed 6.5% to wink at the $15.55 level.


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