Traders Bet On a Huge Drop From F5 Networks, Inc. (FFIV)

Long-term options traders see tough times ahead for F5 Networks, Inc. (NASDAQ:FFIV)

by Josh Selway

Published on Apr 23, 2015 at 12:33 PM
Updated on Jun 24, 2020 at 10:16 AM

F5 Networks, Inc. (NASDAQ:FFIV) has added 2.1% today to trade at $122.92, after the company announced the retirement of CEO John McAdam, who will be replaced by Manny Rivelo. Also boosting the shares are quarterly profits that beat estimates, and a round of bullish brokerage notes. Still, puts are crossing at four times what's normally seen at this point in the day. FFIV's most popular contract is the January 2016 87.50-strike put. It appears traders are buying to open the option, expecting the stock to fall roughly 29% -- and below the strike -- by January 2016 expiration. FFIV hasn't seen this level since January 2014.

Even though this bet is extremely ambitious, it's not uncommon to see traders take a skeptical approach to the shares. For one, the security's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.95 reveals put buying has nearly doubled call buying during the past two weeks. What's more, this ratio outranks 92% of readings from the past year.

Secondly, the 5 million shares of FFIV controlled by short sellers would take over a week to buy back, at the stock's average daily pace of trading. What's more, short interest surged 46.7% during the two most recent reporting periods.

Even analysts are unsure of the equity, with 12 of 26 brokerage firms deeming the shares a "hold." In fact, earlier today, MKM Partners downgraded FFIV to "neutral" from "buy," and slashed its price target to $125 from $135, while five other firms also cut their price targets. On the other hand, no fewer than six analysts upped their price targets, and Needham upgraded the stock to "buy" from "hold."

Since its early 2015 bear gap, F5 Networks, Inc. (NASDAQ:FFIV) has performed well on the charts, adding 13.2%. The shares are now poised to close above their 20-week moving average for the first time since early January. Considering this show of technical strength, it's possible today's deep out-of-the-money put buyers are shareholders seeking a downside hedge.


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