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Option Players Bet on a Short-Term Bounce for Juniper Networks

JNPR's November 17-strike call is a popular bet in today's session

by 11/7/2012 12:13 PM
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Option players have preferred puts over calls on Juniper Networks, Inc. (NYSE:JNPR - 17.63) in recent weeks, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 10 sessions, traders have bought open 475 puts for every 100 calls. This put/call volume ratio of 4.75 ranks in the 99th percentile of its annual range, indicating bearish bets have been accumulated over bullish at a near annual-high pace.

This trend has translated into an elevated Schaeffer's put/call open interest ratio (SOIR) for the stock. Specifically, JNPR's SOIR of 0.82 ranks higher than 88% of other similar readings taken in the past year, suggesting short-term speculators have been more put-heavy toward the equity just 12% of the time during the last 12 months.

The divide among option players is a little less black-and-white in today's session, though, with call and put volume relatively even-keeled. By the numbers, around 3,000 call and put contracts have crossed the tape.

The day's most active strike is the November 17 call, which has seen more than 1,400 contracts trade. A healthy portion of these have crossed at the ask price, and implied volatility has ticked 4.2 percentage points higher, allowing us to assume that a portion of today's volume represents buy-to-open activity. By initiating these long calls, speculators expect JNPR to rally above the $18.20 mark (the strike plus the volume-weighted average price of $1.20) by next Friday's close, when November options expire. This is a 3.2% jump from the stock's current perch.

On the charts, JNPR's long-term price action indicates a technical struggle. The stock has been ushered steadily lower under the weight of its 32-week moving average since May 2011, and is now down almost 30% on a year-over-year basis. However, the equity has shown some signs of life in recent months, which may be attracting today's call buyers. For starters, the stock has rallied roughly 24% since hitting its annual low of $14.01 on July 17. Plus, JNPR has outperformed the broader S&P 500 Index (SPX) by nearly eight percentage points over the last 20 sessions, on a relative-strength basis.

JNPR gapped higher to start today's session, following last night's news that the company will part ways with long-time supplier Plexus (NASDAQ:PLXS). However, the stock is now struggling to maintain a foothold on positive ground. If JNPR closes at or below $17 by the end of next week, the maximum potential loss to the call buyers is limited to the initial premium paid.


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