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Option traders are loading up on bearish bets ahead of VMware, Inc.'s (NYSE:VWM - 98.47) turn in the earnings confessional this evening. Around 3,100 puts have crossed the tape so far, representing almost five times the average intraday volume for put options. VMW's April 90 put has emerged as the most active strike, with more than 1,500 contracts traded. Nearly all of these have gone off at the ask price, implied volatility has ticked 1.8 percentage points higher, and only 192 contracts currently make up open interest here. In other words, it appears new positions are being initiated.
In order for these deep out-of-the-money puts to be profitable by April expiration, VMW must drop 11.3% to breach breakeven at $87.35 (strike price less the volume-weighted average price of $2.65) by the close on Friday, April 19, when the options expire. Delta at this strike on Friday was docked at negative 24%, suggesting a roughly 1-in-4 chance these puts will finish in the money by expiration.
Today's penchant for puts echoes the withstanding trend seen in the options pits, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 50-day put/call volume ratio of 0.73 ranks higher than 70% of other such readings taken in the past year, implying puts have been bought to open over calls at a faster-than-usual clip throughout the past 10 weeks.
On the charts, VMW has been moving steadily higher in recent months, with the shares bouncing nearly 21% from their late-October low of $81.50. In light of this positive price action, this latest bout of put buying in the options pits may simply represent shareholders protecting profits against a potential pullback. In fact, the stock is trading lower in today's session, after this morning's bearish brokerage note from Lazard. However, with the equity brushing past its upper Bollinger Band last Friday, a near-term pullback may have been in the cards.
As mentioned, the cloud concern is slated to unveil its quarterly results after tonight's close. The company has bested bottom-line estimates in each of its last four quarters, and Wall Street is calling for a per-share profit of 78 cents in VMW's fourth quarter.