Although VeriFone Systems Inc
(NYSE:PAY) has pared a portion of Thursday's steep losses in today's session, the positive price action has failed to convince option speculators. Puts are trading at roughly five times the average intraday pace for PAY, and nearly a quarter of this volume has centered on PAY's January 2014 20 strike. The majority of the roughly 1,500 contracts that have traded at this LEAPS strike have crossed at the ask price, and volume is outstripping open interest, indicating the initiation of new bearish positions.
By buying these in-the-money puts for a volume-weighted average price (VWAP) of $4.17, speculators will begin to profit with each step south of $15.83 (strike price less the VWAP) PAY takes through January expiration. At last night's close, delta for these puts came in at negative 0.49, or 49%. Simply stated, for each dollar PAY surrenders over the next 10 months, these puts will gain $0.49. (Conversely, for each dollar PAY adds, the options will lose $0.49.)
Today's interest in PAY puts only builds on the recent trend in the options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 11,683 puts, compared to 10,419 calls over the last 10 days. The resultant put/call volume ratio of 1.12 ranks higher than 82% of other such readings taken in the past year, pointing to a healthier-than-usual appetite for bearish bets over bullish of late.
The pessimism isn't all that surprising, though, considering the stock has shed roughly 36% in 2013. What's more, the stock has lagged the broader S&P 500 Index
(INDEXSP:.INX) by more than 48 percentage points over the last 20 sessions. The equity's technical troubles were only exacerbated in Thursday's session, after the electronic payment provider took a hatchet to its fiscal first-quarter forecast. The downwardly revised outlook prompted a slew of bearish brokerage notes
, and the stock shed around 43% by the time the closing bell mercifully sounded.
As mentioned, though, PAY is trading about 4% higher in today's session, and was last seen lingering near $19.02. With the stock's Relative Strength Index (RSI) of 13 sitting solidly in oversold territory, a near-term bounce wasn't out of the question.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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