Adobe Systems Options (ADBE): Unusual Trading Activity

| June 18, 2012 | 0 Comments

ADBE OptionsOptions in software maker Adobe Systems (ADBE) are showing a huge amount of trading activity this morning.

Even though the broad market is relatively flat this morning, it’s discouraging because the news that traders were looking for did come out of Europe over the weekend. 

So, it’s not surprising that our tracking system is showing large put buying in what has become a volatile name.

Earnings season is already ramping up again.  Europe is still dealing with their issues.  And domestic housing data this morning was mediocre at best. 

In turn, we now need to hope for some good earnings news out of big names like Adobe.

However, revenue missed expectations in the first quarter of 2012.  And it seems at least one put buyer expects similar news when the company reports second quarter earnings after the bell tomorrow.

In early trading, ADBE is flat at $32.33 a share. 

But right out of the gate this morning, a trader came in and purchased about 2,000 put spreads on Adobe.  First he bought the ADBE July 32 puts for $1.30, and then he sold an equal number of ADBE July 29 puts for $0.40.

Volume exceeded open interest at each strike, indicating that a new position was initiated.

Let’s remember… when buying a put spread, the maximum profit is the difference between the strike prices minus the amount paid for the spread. 

So, since this trade cost $0.90 a share, it can earn a maximum profit of 233% as long as ADBE closes at or below $29 by July expiration.

Not a bad potential pay-off!

So, the question is, why so much negativity around this name?

It’s not too hard to understand really. 

You see, large tech companies, like Google (GOOG), Facebook (FB), and Microsoft (MSFT), are promoting HTML5.  It’s a web programming language that could quickly replace Adobe products and accelerate the demise of Adobe’s Flash as the standard for media delivery.

Adobe’s creative solutions are mature products. If they want to stay in business, ADBE has to offer attractive new features to entice users to upgrade regularly to the latest release of the flagship Creative Suite products.

Furthermore, the company is also now subject to headline risks. For instance, there are security vulnerabilities in the Flash product.  As such, the product has become a preferred vehicle for hackers to gain unauthorized access to users’ computers.

Lastly, and most importantly, Apple (AAPL) has named Flash as the primary reason Mac computers crash.

I think these vulnerabilities are exactly what options traders are betting on here.

Let’s wait a few days and see how this plays out!

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.