Infinera Put Options Hot After Downgrade

INFN short sellers may have been hedging with calls in recent weeks

Oct 1, 2018 at 10:57 AM
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Options traders are blasting Infinera Corp. (NASDAQ:INFN) this morning, as the telecom stock sells off in the wake of a bearish brokerage note. At last check, INFN shares were down 15.1% at $6.20, and 2,800 options have changed hands -- six times what's typically seen at this point in the day.

Most of the action has occurred on the put side, with the weekly 10/5 6-strike put garnering the bulk of the attention in early trading. More than 1,500 contracts have traded here, and it looks like speculators may be buying to open new positions for a volume-weighted price of $0.08. If this is the case, breakeven for the put buyers at this Friday's close -- when the options expire -- is $5.92 (strike less premium paid).

This accelerated put buying marks a change of pace in INFN's typically quiet options pits. Amid relatively low absolute volume, the stock boasts a 10-day call/put volume ratio of 12.24 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- which ranks in the 81st annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

However, it's possible some of this call buying is at the hands of shorts sellers initiating an options hedge. While the equity is on the short-sale restricted list today, short interest on INFN surged 37.1% in the most recent reporting period to 16.32 million shares -- the most since the start of the year. This represents 11% of the stock's available float, or 4.5 times the average daily pace of trading.

This skepticism is seen elsewhere on the Street, with the majority of analysts maintaining a "hold" or worse rating on Infinera. Just this morning, MKM Partners downgraded INFN to "sell" from "neutral," and slashed its price target by 50% to $5.50, saying it expects the company to lose CenturyLink (CTL) as a major customer to Ciena (CIEN).

INFN stock's reaction to this downgrade has it fresh off a five-year low of $5.96, and pacing toward its worst day since May 10. Plus, the shares have effectively closed a bull gap from early February, which had served as a floor for Infinera in late September.

infn stock daily price chart on oct 1


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