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Tech concern F5 Networks, Inc. (NASDAQ:FFIV - 94.50) has emerged on option traders' collective radar today, with both puts and calls flying off the shelves. In afternoon action, FFIV has already seen around 10,000 puts and 13,000 calls change hands, far exceeding its typical intraday volume of around 3,550 puts and 3,650 calls.
On the bearish side of the aisle, traders are establishing new positions at the November 80 put, which has seen more than 2,650 contracts traded on open interest of fewer than 1,250 contracts. More than half of the out-of-the-money puts have changed hands at the ask price, hinting at buy-to-open volume.
By purchasing the puts to open, the buyers have one of two motives: to capitalize on a post-earnings plunge for FFIV, or to lock in an appealing sale price for their FFIV shares, should the stock take a near-term beating. For the "vanilla" option bears, the goal is for FFIV to retreat beneath the $78.83 level (strike minus volume-weighted average price of $1.17) -- which would mark a new annual low -- within the next few weeks. For the protective put buyers, the goal is for FFIV to muscle higher, since they're shareholders above everything else.
On the bullish side, investors are initiating fresh positions at the November 100 call, which has seen close to 2,200 contracts traded on open interest of fewer than 1,300 contracts. A healthy portion of the calls have crossed at the ask price, once again indicating buy-to-open volume. By purchasing the calls for a volume-weighted average price of $3.61, the buyers will profit if FFIV erases its month-to-date deficit and surmounts the $103.61 level (strike plus premium paid) within the options' lifetime.
Whether bearish or bullish, the speculators are paying a pretty penny for their short-term bets, as evidenced by FFIV's ascending Schaeffer's Volatility Index (SVI). Approaching tonight's earnings release, the stock's SVI has catapulted to 58% -- above 52% of all other readings of the past year, suggesting near-term option premiums are relatively pricey at the moment.
However, today's put skew is just more of the same for FFIV. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.07 registers in the 75th percentile of its annual range, implying that short-term option traders are more put-heavy than usual right now.
Elsewhere on Wall Street, though, not everyone has joined the bearish bandwagon. Currently, FFIV harbors 13 "strong buys" and three "buy" ratings from analysts, compared to 13 lukewarm "holds" and not a single "sell" or worse suggestion. Likewise, the average 12-month price target on the stock sits at $121.99 -- implying expected upside of about 28% to FFIV's closing price of $95.54 on Tuesday, and in territory the stock hasn't charted since mid-May.
On the charts, the shares of FFIV have surrendered roughly 10% since the start of the month, ushered lower beneath their 10-day moving average. From a longer-term perspective, the equity's most recent rebound attempt stopped short beneath its 200-day moving average, which served as a foothold in late 2011 and earlier this year.
Historically, FFIV has matched or exceeded analysts' per-share profit projections in each of the past four quarters, according to Thomson Reuters. On average, Wall Street is anticipating earnings of $1.18 per share for the company's fiscal fourth quarter. Should the firm snap its streak of bottom-line earnings beats, a round of downgrades and/or price-target cuts could exacerbate recent selling pressure.