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Traders Roll the Dice With Ciena Options

Speculators make a beeline for CIEN's front-month calls

by 10/10/2012 2:36 PM
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Ciena Corporation (NASDAQ:CIEN - 12.66) calls have been flying off the shelves today, despite the shares shedding about 1% in intraday action. Close to 10,000 of these bullishly oriented options have crossed the tape so far -- which is eight times the norm, and almost eight times the number of puts traded.

Leading the pack is the near-the-money October 13 strike, where north of 8,500 calls have changed hands at a volume-weighted average price (VWAP) of $0.30. A healthy portion of these contracts were exchanged at or near the ask price, pointing to buyer-driven activity. With implied volatility last seen more than two percentage points higher -- along with the fact that today's volume exceeds current open interest levels -- it can be inferred that new positions are being implemented here. By purchasing these calls to open, traders are expecting the stock to power north of $13.30 (strike price plus VWAP) by Oct. 19, which is when front-month options expire.

Today's accumulation of bullish bets is par for the course, as CIEN's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.83 -- confirming that calls outweigh puts among the front three-months' series of options. This ratio ranks in the optimistically skewed 38th percentile of its annual range, meaning near-term traders are showing a stronger-than-usual preference for calls over puts lately.

Bullish sentiment toward CIEN is running high among the brokerage bunch, as well. The stock currently sports 12 "strong buys" and two "buy" ratings, compared to six "holds" and zero "sells." What's more, Thomson Reuters shows an average 12-month price target of $17.10 for the telecom issue, reflecting a 34% premium to yesterday's close of $12.77.

However, CIEN still has a few skeptics out there, as short interest presently accounts for roughly 23% of the equity's available float. In fact, it would take close to seven days to buy back these shorted shares, at the security's average pace of trading. This suggests that perhaps some of the recent call activity is the work of short sellers looking to hedge their bearish positions.

CIEN has put forth a modest technical performance during the past year, gaining close to 6% from the year-ago period. However, the stock is still struggling to recover from an earnings-induced bearish gap at the end of August, when it suffered a single-session loss of more than 19%. Meanwhile, the equity continues to trade below its 10-day and 20-day moving averages, which have served as resistance since mid-August.

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