F5 Networks Options (FFIV): Unusual Trading Activity
Options in network traffic company F5 Networks (FFIV) are experiencing large activity today.
Today we’re looking to see how option traders are positioning for FFIV earnings after the close.
So far this morning it looks like they’re neutral to bullish on this name. In other words, traders are looking for either no movement or a slight movement to the upside.
Although the Dow Jones and S&P 500 came off a stellar day yesterday, FFIV is just trading down fractionally at $123.45.
Already this morning, one option trader came in and sold over 2,000 put spreads.
This is a strategy where one put option is sold and another put option is bought at a lower strike. Since this strategy involves selling a higher priced put, this position is done for a credit.
Now, purchasing the lower strike put reduces a trader’s margin requirement as well as limits his risk to the difference between the strikes minus the credit received.
Remember, a short put spread is an option strategy where a trader wants the stock price to remain stagnant or move higher.
So the trade this morning was a sale of 2,000 FFIV April $120 strike puts for $4.40 a share and the purchase of the FFIV April $110 strike puts for $1.30… for a total credit of $620,000.
With only two days left until April expiration and earnings this afternoon, this option trader is thinking F5 Networks will remain above $120 a share. And he’ll finish the week profiting the entire $620,000.
Not bad for a week’s work!
But why a play on F5 Networks?
For those of you who don’t know, F5 Networks provides products that help manage network traffic, application complexity, and network security.
F5’s customer base has evolved from an initial focus on Internet service providers and e-commerce sites to the corporate IT market.
Customers include Deutsche Telekom, Citigroup, eBay, General Electric, and General Motors.
I think this large call activity is due to analysts’ expectations for upcoming earnings and its niche market in the technology sector.
During the past year, FFIV has cultivated a nice marketing relationship with Oracle (ORCL). And by allowing outside vendors like ORCL to get involved in specific tasks for its products, FFIV is creating a powerful sales channel.
Also, FFIV has been able to create proprietary systems for its network. This makes it very difficult for other firms to use anything but F5 products.
So, as we await earnings this afternoon in this volatile market, we’ll see if FFIV remains above $120 a share, allowing this trader to collect his hefty profit.
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Category: Unusual Options Trading Activity
