Arista Networks Post-Earnings Plunge Sparks Heavy Options Trading

Put buying was hot on ANET ahead of earnings

by Karee Venema

Published on Nov 1, 2019 at 10:18 AM
Updated on Nov 1, 2019 at 10:51 AM

Arista Networks Inc (NASDAQ:ANET) unveiled third-quarter adjusted profit of $2.69 per share on $654.4 million in revenue -- more than analysts were expecting. However, the cloud infrastructure specialist said it expects current-quarter revenue to arrive between $540 million and $560 million, less than anticipated, with CEO Jayshree Ullal citing "a sudden softening in Q4 with a specific cloud titan customer," which several analysts are speculating is Facebook (FB).

Against this backdrop, brokerages are blasting the cloud stock with bearish notes this morning. A number of downgrades have already come through, including one to "underweight" from "neutral" at J.P. Morgan Securities, which also slashed its price target to $180 from $290.

In reaction, ANET stock is down 28.8% to trade at $174.50, fresh off a two-year low of $173.31, and headed for its biggest one-day percentage drop ever. It's been a sharp fall from grace for Arista Networks, which was trading above $331 in mid-April, but has now been cut in half from its record peak at $331.27.

Options traders were positioned for a post-earnings pullback. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Arista Network's 10-day put/call volume ratio of 1.07 ranks in the 86th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Today, options volume is running hot, with more than 7,000 contracts traded already -- 42 times what's typically seen at this point. The weekly 11/1 165-strike and 200-strike puts are most active, and it looks like day traders are initiating new positions here.

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