Options Bears Ravage VMware, Inc. (VMW)

There is no shortage of VMware, Inc. (NYSE:VMW) bears on Wall Street

by Josh Selway

Published on Mar 8, 2016 at 2:23 PM
Updated on Jun 24, 2020 at 10:16 AM

Bearish betting has been heating up on tech stock VMware, Inc. (NYSE:VMW). For instance, over the past 10 weeks, almost three puts have been bought to open for every call at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX).

Plus, VMW's Schaeffer's put/call open interest ratio (SOIR) stands at 2.65. Not only does this mean put open interest almost triples call open interest in the stock's front three-months' series of options, but it also ranks in the 99th annual percentile. 

This trend is continuing into today, with put volume running at 10 times the norm. In fact, the stock's current single-day put/call volume ratio of 50.98 is lingering in annual-high territory. Most of this action has taken place at the July 47.50 and the weekly 3/24 44.50-strike puts, accounting for more than 95% of VMW's total option volume.

Traders who may be buying to open the July puts are hoping for the shares to slide below $47.50 before the contracts expire. For the weekly puts, meanwhile, the goal for option buyers is for VMW to sink below $44.50 by expiration at the close on Friday, March 24. The most either set of put buyers has risked, though, is the initial premium paid.

Looking elsewhere, numerous other traders have displayed their skepticism toward VMW by shorting the stock. By the numbers, short interest increased over 12% during the most recent reporting period, and now accounts for more than one-fifth of the stock's float. At average daily volumes, it'd take these bears roughly seven days to cover their bets. 

This pessimism seems justified when looking at the charts. Including its 2% drop today, VMware, Inc. (NYSE:VMW) has now given back over 47% since its annual high of $93.43 from August, last seen at $49.34. The stock now faces a double-barreled layer of resistance in the form of its descending 60-day moving average and the round-number $50 level. 

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