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JDS Uniphase Corp (JDSU) Traders Prepare for Near-Term Slump

Short-term bears snatch up JDSU July 14 puts

by 7/5/2013 10:51 AM
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During the past four weeks, JDS Uniphase Corp (NASDAQ:JDSU) speculators have bought to open more than two calls for every put, resulting in an International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 20-day call/put volume ratio of 2.11. Likewise, JDSU's Schaeffer's put/call open interest ratio (SOIR) of 0.33 ranks just 3 percentage points above its 52-week nadir. This means that put open interest on options with a shelf-life of three months or less is at a near-annual low, with call open interest outnumbering it by roughly 3-to-1.

With that being said, JDSU experienced a change of pace in its options pits on Wednesday, where 2,322 puts crossed, compared to only 1,216 calls. Almost half of these bearish bets took place at the July 14 put for a volume-weighted average price (VWAP) of $0.30. Moreover, 98% of these contracts went off at the ask price, and open interest grew by 585 positions, collectively inferring the initiation of long puts.

On the charts, JDSU has tacked on 32.5% year-over-year, and was last seen lingering around $14.80. Even so, Wednesday's put buyers anticipate JDSU will move south over the next few weeks. Specifically, they expect the stock to dip below the breakeven price of $13.70 (strike price less the VWAP) by the close on July 19, when front-month options expire. Therefore, it is possible that JDSU shareholders are purchasing protective puts to guard their positions against a potential downturn. Still, should the stock remain above the 14 strike, the most Wednesday's put buyers stand to lose is the initial premium paid.

Outside of the options pits, the brokerage bunch remains bullish toward JDS Uniphase Corp. In fact, nine of the 12 analysts weighing in on the stock give it a "buy" or better endorsement, while three consider it a "hold" and zero view it as a "sell." Furthermore, analysts' consensus 12-month price target of $15.92 represents expected upside of 7.6% from current levels.


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