Increased Put Options Review Before Earnings (CRM, VMW, JNPR, NFLX, AMZN)

Posted in Options 
January 24th, 2011

An article in Barron’s this weekend against Salesforce.com (NYSE: CRM) and the risks associated with chasing its 100-times forward earnings multiple is adding some weight on the shares of several key high-flying tech shares ahead of this week’s earnings.

Virtualization leader VMware Inc. (NYSE: VMW) is reporting earnings after the close on Monday and Thomson Reuters has estimates of $0.44 EPS and $803.54 million in revenues; for the next quarter estimates are $0.41 EPS and $783.7 million in revenues.  The 52-week range is $41.30 to $97.61.  The F5 Networks news took away some oomph from the stock here an dthis still trades at more than 50-times DEC-2011 fiscal earnings estimates.  Shortly after 2:00 PM EST we have seen more than twice as many PUTS as CALLS trade in the FEB11 options expiration.  Over 8,000 contracts traded on the PUTS.  The breakeven for speculative PUTS at the $85 strike: over $7.00 lower from the price of $88.79.

Networking player Juniper Networks Inc. (NASDAQ: JNPR) is due with earnings on Tuesday and Thomson Reuters has estimates of $0.37 EPS and $1.12 billion in revenues; for the next quarter estimates are $0.34 EPS and $1.09 billion in revenues. Its 52-week range is $22.25 to $38.73 and shares were at $30.54 about 90 days ago.  At $34.83, the breakeven to the closest speculative FEB11 PUT is a drop of more than $2.70 or an implied price of $31.30 or less.  As earnings will come tomorrow, look for options trading to be more precise Tuesday over Monday.

Home video delivery leader Netflix Inc. (NASDAQ: NFLX) is due to report earnings Wednesday and  Thomson Reuters has estimates of $0.71 EPS and $597.23 million in revenues; for the next quarter estimates are $0.88 EPS and $670.98 million in revenues.  Shares were at $194.84 just on January 18 and hit a high of $209.24 on December 1.  This was just about $150.00 about 90-days ago.  The outlook will make the difference here more than just the past.  Netflix is seeing more speculative PUT volume tahn it is CALL volume.   AT $182.00, the breakeven in PUTS would call for the stock to fall under $173.00 for the PUT option to pay off… In short, it requires a $9.00 drop to be profitable.

On Thursday comes the earnings from Jeff Bezos and firends at Amazon.com Inc. (NASDAQ: AMZN). Thomson Reuters has estimates of $0.88 EPS and $12.98 billion in revenues; for the next quarter estimates are $0.76 EPS and $9.3 billion in revenues.  Shares recently peaked out at $191.60 before everyone saw the writing on the wall elsewhere at other hi-beta and high-flying tech stocks.  The 52-week trading range is $105.80 to $191.60 and it is going to take much more than the Kindle to justify a 52-times earnings multiple for its DEC-2011 consensus estimates. We will hold off on analyzing PUTS in Amazon until Thursday gets closer because the BEB11 actions is showing more CALLS volume by far then in PUTS.  That may be due to the Bank of America Merrill Lynch call this morning reiterating Buy and a $198 target but it may just be that there is still more than three full trading sessions before it reports earnings.  On a guess today, speculative PUT buyers would have to see a drop of close to $7.00 with shares at $177.30.  That would put the breakeven close to $170.00.

Stay tuned.  This week will be key for many of these high flying hi-beta stocks.

JON OGG

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