By Doris Frankel
(Reuters) - F5 Networks <FFIV.O> is a volatile, momentum-driven stock with a good track record beating market expectations, but trading after its post-close earnings report may be less dizzying than usual.
Options market activity suggests bullish sentiment among investors after the stock has been hit recently, in tandem with peers in the tech industry.
The options market is positioning for a smaller swing than normal when compared to past moves. F5 options imply a share price move of about 9 to 9.5 percent based on the July options expiring this Friday.
For many stocks, that would be quite a jump - or fall. For F5, it's a little quieter than usual.
"The expectations in the options market is that options are underpricing an earnings move compared to historical data," said Steve Place, a founder of options analytics firm investingwithoptions.com in Mobile, Alabama.
Shares of the network gear maker have tended to rise or fall by an average of 12.05 percent over the past eight quarters, according to Birinyi Associates. It has beaten earnings forecasts in 13 of the last 14 reports, they said.
There has been a lot of call buying heading into earnings. During the 10-day period starting at July 3, option players on three U.S. exchanges have purchased nearly three times as many calls than puts as new positions, said Joe Bell, senior equity analyst at Schaeffer's Investment Research.
"This ratio was higher than 98 percent of the readings taken during the past year, indicating quite a bit of optimism from option speculators ahead of earnings, Bell said.
But the action in F5 call options, contracts that grant investors the right to buy shares at a fixed price by a certain date, may not only suggest optimism. The calls could also be used as insurance by investors with short positions.
Schaeffer's put-to-call open interest ratio for F5 Networks for options set to expire in the front three months is lower than 100 percent of the readings taken during the past 12 months. This ratio of 0.67 indicates calls outnumber puts, suggesting that option traders are positioned bullishly for the three nearest option expiration months, Bell said.
Analysts expect F5 to beat or post an in-line third-quarter but expect a muted forecast following a rash of outlook cuts from peers in the industry like Adtran <ADTN.O> and Acme Packet <APKT.O>, who cut estimates as telecom providers held back spending.
Network gear makers have been facing slowing demand for their products as telecom carriers reduce spending amid a sluggish U.S. economy and weakness in Europe.
F5 is not a highly shorted stock and its short interest stands at 4.7 percent of its outstanding shares traded. But that figure has increased 45 percent during the past month, according to Schaeffer's Investment Research data. Continued...