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F5 Option Players Banking on Short-Term Upside

Buy-to-open calls have seen increased attention in FFIV

by 9/18/2012 1:16 PM
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There has been a growing preference among option traders for bullishly positioned calls on F5 Networks, Inc. (NASDAQ:FFIV - 110.47) in recent weeks. During the last 10 sessions on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than two calls for every put, a step up from FFIV's 50-day call/put volume ratio of 1.64. Plus, the shorter-term ratio ranks higher than 94% of other such readings taken over the past 52 weeks, indicating bullish bets have been scooped up over bearish at a near annual-high clip.

The campaign for calls is evident among short-term speculators, as well. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.79 ranks in the 16th percentile of its annual range, implying near-term traders are more call-heavy than usual toward FFIV.

There's no shortage of calls being swapped in the options pits today. Roughly 18,000 calls have crossed the tape, representing almost six times the average daily call volume, and nearly three times the number of put contracts that have changed hands. Short -term speculators have turned their attention to the September 110-strike call and the September 115-strike call, which have emerged as two of the top three trades so far. Both strikes are seeing the majority of contracts cross at the ask price, as well as an uptick in implied volatility. Additionally, volume has surpassed open interest -- all indications that new bullish positions are being initiated.

By buying to open the September 110-strike call for a volume-weighted average price (VWAP) of $2.02, traders are betting on FFIV to finish the week (when the options expire) above the $112.02 mark (the strike plus the premium paid), representing a 1.4% premium to the stock's current perch. Meanwhile, the more optimistically aligned September 115-strike call buyers expect the equity to muscle 4.7% higher to $115.65 (the strike plus the VWAP of $0.65) by Friday's close.

At last check, FFIV had jumped around 5.7% in today's session, after an article on CRN.com yesterday confirmed that sector peer Cisco Systems, Inc. (NASDAQ:CSCO) is checking out of the Application Control Engine (ACE) load-balancer game. According to the article, this allows F5 Networks -- which dominates market share for ACE products -- to profit from CSCO's woes. The stock has now added more than 31% on a year-over-year basis.

Going forward, FFIV may be poised for some contrarian tailwinds in the near term. No fewer than 11 out of 29 analysts maintain a middling "hold" recommendation toward the stock, plus short interest accounts for a healthy 5% of the equity's float. Should FFIV continue to display strength on the charts (the stock has added 25% since hitting its year-to-date low of $88.30 on July 24), a capitulation from either of these skeptical groups could provide a fresh wave of buying power.


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