Adobe Systems Incorporated
(NASDAQ:ADBE) saw a notable surge in put activity yesterday, as roughly 28,000 contracts crossed the tape throughout the session. This was about 11 times the security's average single-session put volume, and more than six times the number of calls exchanged. However, not all of yesterday's put action was of the bearish variety.
Most popular was the January 2014 45-strike put, where north of 6,000 contracts -- including several mid- to large-sized blocks -- changed hands at the bid price
, suggesting they were sold
. To be more specific, these out-of-the-money puts traded for a volume-weighted average price of $0.66. Meanwhile, open interest at this strike jumped by 4,915 contracts overnight, confirming the creation of new short positions.
In other words, the speculators are counting on the software concern to remain north of the $45 level through the close on Jan. 17, 2014. This would render the options worthless, and allow the sellers to retain the initial premium collected. At last check, the delta for the put stood at negative 0.16, implying it has just a 16% chance of moving into the money by January options expiration. Still, if the stock does, in fact, sink below the strike price during that time frame, the traders could find themselves on the hook to buy the shares at $45 each, no matter how low ADBE sinks.
This confidence in Adobe Systems isn't unfounded, considering the shares have climbed north of 39% year-to-date -- and 57.5% year-over-year -- to trade at $52.60. What's more, the firm is tentatively scheduled to report quarterly earnings after the market closes on Thursday, Dec. 12. Over the past eight quarters, Adobe has averaged a positive return of 3.6% the day after posting its results.
This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.
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