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JDS Uniphase Corp (JDSU): Bullish Bets Backfire

Yesterday's JDS Uniphase Corp call buyers are already down 85%, thanks to weak guidance

by 8/13/2014 10:10 AM
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JDS Uniphase Corp (NASDAQ:JDSU) option bulls were extremely busy yesterday, ahead of the company's fiscal fourth-quarter earnings report. In fact, calls traded at 11 times the usual daily pace, while the stock's 30-day at-the-money implied volatility spiked 4.3% to 54.5%, indicating elevated demand for short-term options.

Most active in JDSU's options pits was the August 13 call, where nearly 6,800 contracts changed hands. The majority of the calls were bought to open at a volume-weighted average price (VWAP) of $0.13, meaning the speculators expected the shares to rally past breakeven at $13.13 (strike plus VWAP) by this Friday's close -- when front-month options expire.

However, despite posting solid results for the previous quarter, JDSU issued current-quarter revenue and profit guidance that disappointed the Street, prompting a rush of bearish analyst attention this morning. No fewer than seven firms weighed in on JDSU, and all reduced their price targets on the stock, while B. Riley and Piper Jaffray added insult to injury by also downgrading the shares to "neutral" from "buy" and "overweight," respectively.

As a result, JDSU Uniphase Corp (NASDAQ:JDSU) is already sitting nearly 10% lower this morning at $10.77, and the August 13 call is currently trading at just $0.02 -- meaning yesterday's buyers are already staring at an 85% loss. What's more, delta on the option has plummeted to 0.029 (from 0.24 at Tuesday's close), indicating a less than 3% chance the contracts will be in the money at week's end.


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