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How to Play Ubiquiti Networks Ahead of August Earnings


Investors could earn nearly 4% in two weeks.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

I continue to like Ubiquiti Networks (NASDAQ:UBNT) for a short-term buy-write [subscription required], or writing call options against Ubiquiti.

I first wrote about Ubiquiti for the Buzz & Banter on May 12. To review, the stock, one of many tech names to experience major declines this spring, fell sharply after its early May earnings report even though results were in line with expectations. Investors were concerned about inventory builds, but management insisted that the inventory builds were intentional and strategic. Subsequently, the company announced a $75 stock repurchase authorization that became actionable this week.

With earnings not due out again until early August, investors can look to call options expiring in June or July. I like the at-the-money June $35. The called return is nearly 4% for just over two weeks, which annualizes to 100% even without compounding. The July $35 call is attractive as well.
Both trades, if not called, will get investors long the stock at a discount to $34.18, the closing price the day before the buyback was announced.

Through a wider prism, the stock trades at an extremely reasonable multiple for its growth rate. And with the company's founder owning nearly two-thirds of the shares, management is strongly aligned with shareholders.
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Position in UBNT.

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