Earnings Preview: VeriFone Systems Inc (PAY)

VeriFone Systems Inc (PAY) is getting ready to reveal its earnings report tomorrow evening, and option traders are preparing for a post-earnings downturn

Aug 31, 2016 at 12:58 PM
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Electronic payment technology stock VeriFone Systems Inc (NYSE:PAY) is set to report earnings after the market close tomorrow, and option traders are preparing for a post-earnings downturn. It hasn't been an easy year for PAY, with the stock down nearly 30% since the beginning of 2016. The shares have been hovering between $18-$20 levels since their post-earnings bear gap in early June, and are currently up 0.4% at $19.68.

In the option pits, PAY's open interest currently sits at an annual peak. Drilling down to front-month options, the most popular among near-term traders seems to be the September 20 call, which could act as an additional layer of options-related resistance in the near-term.

However, puts are growing increasingly popular among PAY option buyers, as evidenced by the stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which currently sits in the 98th percentile of its annual range. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.07 is higher than 85% of all other readings from the past year, indicating near-term traders have rarely been more put-heavy. Peak open interest among all strikes is the October 19 put, with 27,610 open contracts.

Bearish buyers may want to beware, however, since PAY has finished in the black the day after earnings five of the last eight quarters, averaging a move of 5.9% in either direction. Although, as alluded to earlier, after reporting earnings in June, the stock plummeted 24.7% in a single session, which may explain why traders are pricing in a 12% post-earnings move this time around.

Outside of the option pits, sentiment toward PAY is mixed. While short interest is up 13.1% in the past reporting period, nine of 16 analysts rate the stock a "buy" or better, without a single "sell" to be found.

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