May 11, 2018 / 5:28 PM / 15 days ago

Options traders' caution pays off as Symantec shares sink

NEW YORK (Reuters) - Symantec Corp options delivered bearish traders a windfall on Friday as the cyber-security stock fell as much as 35 percent, a day after the company’s disappointing earnings met expectations for a sharp sell-off.

Traders had been bracing for a major swing in the stock prior to the earnings release on Thursday, when Symantec spooked investors by saying it was investigating concerns raised by a former employee.

The sell-off knocked roughly $6 billion (4.4 billion pounds) off Symantec’s market value, drove a slew of price target cuts by analysts and was the steepest decline in its shares since the dot-com bubble of 2001. It unlocked massive gains for Symantec puts, which convey the right to sell shares at a fixed price in the future.

In particular, contracts betting on Symantec shares slipping below $25 by mid-January were big winners. Two thousand of these contracts, bought for $1.03 each on Thursday, were worth $6.54 each, on Friday, according to Thomson Reuters data.

With about 17,000 contracts open, the Jan. 25 puts made up the largest block of open Symantec contracts. The position has largely held steady since the beginning of April.

“The interest in the deep out-of-the-money puts was a sign that some investors were bracing for a larger than usual move,” said Fred Ruffy, analyst at New York-based options analytics firm Trade Alert.

Graphic: Jump in price of Symantec puts - reut.rs/2KdnT2A

‘Deep out-of-the-money puts’ refer to contracts that are struck well below the trading price of a stock and require a sharp drop in the share price to become profitable.

Over the last eight quarters, on average, Symantec shares logged a post-earnings swing of about 3 percent. On Thursday, options traders expected a roughly 7 percent swing after the latest earnings announcement.

“As earnings come up there’s an amount that options traders expect a stock to move, and mostly it’s pretty close to historical moves,” said Matt Amberson, founder at Chicago-based volatility and options data firm ORATS.

“Symantec was quite a bit higher,” said Amberson.

On Friday, Symantec options volume was nearly 133,000 contracts, or about 11 times its average daily volume, with bearish contracts dominant, according to Trade Alert.

Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang

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