Slow recent performance by Juniper Networks (JNPR) has led to an extreme bias toward bearish options, including this new large-scale credit spread, writes Karee Venema of Schaeffer’s Research.
Calls have been the options of choice lately on Juniper Networks, Inc. (JNPR) as per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and Nasdaq OMX PHLX (PHLX). During the past ten sessions, traders on these exchanges have bought to open 18,893 calls versus 10,264 puts. This brings JNPR’s ten-day call/put volume ratio to 1.84.
From a slightly longer-term perspective, speculators on these exchanges have bought to open nearly three calls for every put in the previous 20 sessions. Plus, the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 0.48 ranks lower than 98% of other such annual readings, implying that near-term options traders have rarely been more call heavy toward JNPR.
Calls were certainly preferred over puts in last week’s sessions. Roughly 15,000 calls changed hands on Thursday (April 26), for example, as compared to fewer than 6,350 puts that crossed the tape.
By the looks of it, one neutral-to-bearish options player used some of the calls to construct a credit spread in the front-month series. One block of 900 May 23 calls crossed the tape at the bid price of $0.20, while a symmetrical block of 900 May 24 calls traded for the ask price of $0.10. An initial net credit of $0.10 was established.
By playing the short call spread, the trader will profit as long as JNPR remains south of breakeven at $23.10 (sold strike + net credit) through May expiration. However, the maximum potential reward is capped at $0.10 no matter how low the stock may fall over the next three weeks. Should JNPR power higher through May 18, the full potential risk is limited to $0.90 (difference between the two strikes - net credit).
On the charts, JNPR’s technical performance is nothing to write home about.
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The stock has ticked up 4.4% in 2012, but is down a staggering 44.6% on a year-over-year basis. What’s more, JNPR has been pressured lower by its descending 200-day moving average.
The security has managed to eke out only one daily close above this trend line since June. It does seem to be consolidating into a tightening range in the last few days. A strong move up or down could be imminent.
When a trader isn’t sure of the direction but feels a move is coming, that’s the perfect time for an option trade to take advantage of that either way.
See also: Understanding Debit and Credit Spreads
By Karee Venema of Schaeffer’s Research
