Option Bears Ignore Splunk Inc. (SPLK) Earnings Beat

Splunk Inc (SPLK) is sinking after last night's earnings report, and put buyers are rushing in

May 29, 2015 at 11:26 AM
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Software concern Splunk Inc (NASDAQ:SPLK) is off 6.3% today at $66.61, even after the company's first-quarter earnings beat and upwardly revised guidance was met with a round of bullish analyst attention. No fewer than six brokerage firms raised their price targets on the stock, including Susquehanna, which set its price target at $84. Nevertheless, eleventh-hour traders are betting on more downside, with puts crossing at nine times the expected intraday pace.

The weekly 5/29 series is extremely popular, accounting for nine of SPLK's 10 most active contracts, as traders try to profit before today's close, when the contracts expire. The most popular option overall is the 5/29 69-strike put, with the 68-strike put also seeing its fair share of attention. It looks like traders are buying these contracts to open, betting on SPLK's losses to steepen this afternoon.

Put buying has been the trend for some time now in SPLK's option pits. Going by 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 0.69 is higher than 78% of readings from the past year. Said simply, put buying has been more popular than usual in the past 10 weeks.

We can reinforce this theory by looking at SPLK's Schaeffer's put/call open interest ratio (SOIR) of 1.22, which shows put open interest outweighs call open interest among options expiring in the next three months. Plus, this reading lands in the 93rd percentile of its annual range, meaning near-term traders have taken a greater-than-usual interest in puts over calls.

It's not like Splunk Inc (NASDAQ:SPLK) hasn't done well on the charts. In fact, prior to today, the shares had outperformed the S&P 500 Index (SPX) by over 19 percentage points in the past two months.

 

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