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Option Brief: Finisar Corporation (NASDAQ:FNSR) option volume exploded yesterday, ahead of last night's quarterly report. This was especially true on the call side, where about 15,000 contracts were exchanged, versus an expected daily amount of less than 1,600. What's more, the stock's 30-day at-the-money implied volatility popped 3.5% to 54.1%, signaling elevated demand for short-term options.
Most active in FNSR's options pits was the June 27 call, where nearly 4,000 contracts traded -- three-quarters at the ask price, suggesting they were bought. What's more, open interest added more than 2,900 contracts overnight -- the most of any strike -- indicating freshly initiated bullish bets. According to Trade-Alert, these speculators paid a volume-weighted average price (VWAP) of $0.49 for the calls.
Based on the terms described above, the traders need the shares of the fiber optics firm to rally north of $27.49 (strike plus VWAP) by next Friday's closing bell, when front-month options expire. Additional gains will accrue north of breakeven, while risk is capped at the initial premium paid, should the calls expire out of the money.
Most likely, Thursday's call buyers were looking for a strong quarterly report to help send the shares (which closed at $25.25) higher. However, with nearly 17% of the equity's float sold short, some of the contracts may have been scooped up by short sellers as upside hedges.
This morning, a fiscal fourth-quarter earnings miss and lower-than-expected current-quarter earnings outlook -- as well as a subsequent onslaught of negative analyst attention -- have sent the stock 23.6% lower to $19.29. As a result, Finisar Corporation's (NASDAQ:FNSR) June 27 call is now asked at roughly a nickel, meaning yesterday's "vanilla" call buyers are already looking at a big deficit.