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Bears Expect Citrix Systems' Post-Earnings Rally to Fade

Near-term put players gravitate toward CTXS

by 2/4/2013 1:56 PM
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Bearish bettors have been piling on Citrix Systems, Inc. (NASDAQ:CTXS - 72.82) today, after the stock was downgraded to "hold" from "buy" at Berenberg this morning. Adding insult to injury, the brokerage firm also reduced its price target to $76 from $87. As a result, roughly 12,000 puts have crossed the tape so far, which is more than five times the norm. By comparison, fewer than 2,300 calls have been exchanged.

A large portion of the action has centered on the March 77.50 put, where north of 2,500 contracts have traded -- the majority of them at the ask price, suggesting they were bought. Specifically, these in-the-money contracts crossed at a volume-weighted average price (VWAP) of $5.50. This strike currently holds open interest of just 82 contracts, while implied volatility was last seen 1.8 percentage points higher -- both signs of buy-to-open activity. In other words, traders are expecting the security to sink below $72 (strike price less the VWAP) by March expiration.

This penchant for CTXS puts over calls is unusual, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the stock's 50-day call/put volume ratio checks in at 1.92, indicating calls bought to open have nearly doubled puts during the past 10 weeks. This ratio ranks higher than 88% of comparable readings gathered within the last 12 months, meaning speculators have been picking up bullish options over bearish at a faster-than-usual clip.

The tech issue is off to a promising start in 2013, having gained more than 11% year-to-date, and outperforming the broader S&P 500 Index (SPX) by nearly 8 percentage points during the past four weeks. What's more, the equity climbed 9.2% on Jan. 31 alone, thanks to a well-received quarterly earnings report. Still, should the shares fail to fall below the aforementioned breakeven rail by the close on Friday, Mar. 15, the most today's put buyers risk losing is the premium paid.


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