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Downgrades, Lower Guidance Draw Out Tibco Software (TIBX) Bears

One group of traders seizes on TIBX April 19 put

by 3/22/2013 11:18 AM
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Tibco Software Inc. (NASDAQ:TIBX - 19.51) is getting slammed in the markets this morning following last night's earnings release and downward guidance from company officials. That also spurred several downgrades this morning. And option traders are reacting as one would expect, with puts trading at eight times their normal levels so far today.

One of the most popular trades has been the April 19 put. A good portion of the 1,173 contracts traded changed hands at the asking price. In addition, volume is more than five times open interest, indicating that at least some of these were purchased to create new positions. The volume-weighted average price (VWAP) stands at $0.57, meaning TIBX needs to move below $18.43 (strike minus VWAP) by the expiration day of April 19 for the trades to be profitable -- a 5.5% drop from its current levels. Failure to breach the strike price would mean the investors lose the premium paid.

A short-term decline of this magnitude is a definite possibility, given Tibco Software's recent trajectory. The stock has already dropped about 15% on today's news, and is quickly approaching its annual low of $18.95 reached on Dec. 5 after a similar earnings warning. In addition, any further price-target cuts could push the stock down further -- its average 12-month target price from analysts is $27.14, 39% higher than its current trading levels.

Option sentiment had already been fairly bearish on TIBX. The stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at a healthy 3.57, which is higher than all but 9% of readings taken in the last 12 months. In simpler terms, puts are being bought to open at a much higher-than-average pace.


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