Option Bulls Cheer VeriFone Systems Inc (PAY) Earnings Beat

VeriFone Systems Inc's (NYSE:PAY) earnings beat is just what option bulls were looking for

by Josh Selway

Published on Mar 11, 2016 at 10:33 AM
Updated on Jun 24, 2020 at 10:16 AM

It could be a big day for VeriFone Systems Inc (NYSE:PAY) option bulls. Shares of the payment processor are shooting higher after the company's fiscal first-quarter earnings topped Wall Street's expectations. PAY's current-quarter revenue estimate also topped the consensus view among analysts. This is good news for many on the Street, as expectations were high ahead of the earnings report. 

For starters, over 20 calls have been bought to open for every put during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 10-day call/put volume ratio of 20.66 is higher than roughly four-fifths of similar readings from the past year, meaning this level of call buying over put buying is very uncommon, historically speaking. 

Further illustrating this call-focused approach is PAY's Schaeffer's put/call open interest ratio (SOIR). At 0.16, this indicator tells us that call open interest outstrips put open interest among near-term options by a greater than 6-to-1 ratio. Plus, it's just 3 percentage points from an annual low, meaning short-term traders are way more call-skewed than normal. 

In fact, over the past 10 days, nine of the stock's top 10 options -- going by increases in open interest -- were calls. One front-month strike traders took a heavy interest in ahead of earnings was the March 26 call. Data from the major option exchanges confirms some speculators initiated long calls here, betting on a move above $26 before the options expire at the close on Friday, March 18. 

Option traders aren't alone with their bullish aspirations, either. Looking at the 14 brokerage firms that cover PAY, 11 say it's a "strong buy," one deems it a "buy," and the other two call it a "hold." Also, following the company's upbeat earnings report, Wedbush and Goldman Sachs upped their price targets to $36 and $31, respectively -- though Pacific Crest also cut its target to $36.

On top of this overwhelming bullish bias on Wall Street, short sellers have recently been throwing in the towel. Over the last two reporting periods, for example, short interest dropped by almost 14%. However, at average daily volumes, it'd still take shorts almost a week to buy back their bets, meaning there's still substantial sideline cash to drive the shares higher. 

On the charts, VeriFone Systems Inc (NYSE:PAY) has picked up steam recently, gaining more than 39% since its two-year low of $20.14 on Feb. 11. Today, the shares are up 5.6% to trade at $28.04, putting them back in the green on a year-to-date basis, and above their 120-day moving average.

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