Put Players Blast Adobe Systems Incorporated After TubeMogul Inc Takeover

Adobe Systems Incorporated (NASDAQ:ADBE) said it will buy TubeMogul Inc (NASDAQ:TUBE), sending ADBE stock spiraling and put volume soaring

Nov 10, 2016 at 11:00 AM
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Adobe Systems Incorporated (NASDAQ:ADBE) is down 3.4% today to trade at $104.20, after ADBE said it will buy TubeMogul Inc (NASDAQ:TUBE) in a cash-and-debt deal valued at over $500 million -- or $14 per TUBE share -- in an effort to expand its presence in the online video advertising market. Shares of TUBE, meanwhile, are up 83%. The drop has sparked a fire under ADBE options traders, with 6,172 contracts on the tape -- five times the expected intraday amount of 956. Puts have the lead over calls, with 4,505 of the former and 1,667 of the latter traded so far.

Drilling down, ADBE's November 105 put has seen the most action in early trading. It looks like speculators could be buying to open new positions here -- betting on the stock to extend its retreat south of the strike through expiration at next Friday's close. This strike is already popular with ADBE options traders, though, and is home to peak put open interest, with 3,965 contracts currently outstanding.

More broadly speaking, put buying has been growing in popularity in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, ADBE's 10-day put/call volume ratio has jumped to 1.11 from 0.36 over the past two weeks. What's more, the current ratio ranks in the 92nd annual percentile, meaning puts have been bought to open over calls at a near-annual-high clip.

Echoing this put-skewed backdrop is ADBE's Schaeffer's put/call open interest ratio (SOIR) of 1.13, which ranks higher than 79% of all comparable readings taken in the past year. Simply stated, speculative players are more put-heavy than usual toward options set to expire in three months or less.

Technically, today's negative price action runs counter to ADBE's longer-term trajectory. Since skimming annual-low-territory near $71.25 in mid-February, the shares have surged 46%. Plus, ADBE stock hit a record high of $111.09 as recently as Oct. 24. As such, it's possible some of the surge in put buying -- particularly at out-of-the-money strikes -- is a result of shareholders protecting paper profits against a pullback.

Regardless, now appears to be an opportune time to purchase short-term premium on ADBE options. The stock's Schaeffer's Volatility Index (SVI) of 22% ranks in the 17th percentile of its annual range, suggesting low volatility expectations are priced into ADBE's near-term options -- a potential boon for Adobe Systems Incorporated (NASDAQ:ADBE) options buyers.

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