How Finisar Corporation (FNSR) Could Catch Skeptics Off Guard

Finisar Corporation (NASDAQ:FNSR) will report earnings after Thursday's close, and there's plenty of pessimism levied toward the tech stock

Dec 6, 2016 at 2:14 PM
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Although the bulk of earnings season has passed, optical equipment specialist Finisar Corporation (NASDAQ:FNSR) is due to release its quarterly report after Thursday's close. Ahead of earnings, there's plenty of skepticism levied toward the tech stock -- both in and out of the options arena -- even with FNSR fresh off a five-year peak. And with Finisar shares having a history of staging sharp post-earnings moves to the upside, now could be a prime time for contrarian traders to give the tech stock a second look.

In the options arena, for instance, speculative players have been buying to open puts relative to calls at a near-annual-high clip in recent months. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.82 ranks higher than 98% of all comparable readings taken in the past year.

Along similar lines, FNSR's Schaeffer's put/call open interest ratio (SOIR) of 0.89 arrives just 5 percentage points from a 52-week peak. In other words, speculators are more put-heavy than usual among options set to expire in three months or less. Plus, put open interest across all FNSR options series ranks in the elevated 94th annual percentile, with 17,823 contracts outstanding -- just off a Nov. 18 12-month peak of 21,672 puts.

This growing skepticism is seen outside of the options pits, as well. Short interest has surged more than 61% since hitting a six-year low in early September, with nearly 8.5 million FNSR shares currently sold short. It would take more than a week to cover all these shorted shares, at the stock's typical pace of trading. Should the stock resume its trek into multi-year high territory -- or turn in another well-received earnings report -- a capitulation from some of the weaker bearish hands, both in and out of the options arena, could help fuel FNSR's fire.

In fact, over the past eight quarters, the stock has been higher in the session subsequent to the quarterly report six times -- averaging a gain of 12.6%. This time around, the options market is pricing in a 14.8% single-session post-earnings swing for FNSR, regardless of direction.

More broadly speaking, this impressive post-earnings action just echoes FNSR's longer-term trajectory, with the shares of Finisar Corporation (NASDAQ:FNSR) more than doubling in value year-to-date. After topping out at $34.99 on Nov. 28 -- its highest point since March 2011 -- the stock has more recently been seen consolidating near its 20-day moving average. Nevertheless, as Schaeffer's Quantitative Analyst Chris Prybal notes, the $33 mark is "the line in the sand," as this represents roughly 1.5 times FNSR's 2015 highs and three times its 2015 lows.

FNSR daily chart dec 6

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