The net bet of one customer’s one-by-two put spread on VeriSign (NASDAQ: VRSN, Stock Forum) suggests some speculators are expecting the stock price to head lower even after the company reported positive earnings last Thursday.
In yesterday afternoon trading, a customer bought 25,000 Sept. 25 puts for around $2.85 per contract and sold twice as many Sept. 20 puts for 93 cents each with VRSN stock trading near $24.66. Interestingly, this transaction suggests that the customer is slightly bearish and wants the stock between $20.00 and $25.00 at September expiration, representing a drop of up to 19%. Open interest for the Sept. 20 put options is 407, while open interest for the Sept. 25 puts is just 308. This one-by-two put spread trading yesterday effectively pushed implied volatility down to 50.5 for Sept. 20 puts and 44.4 for Sept. 25 puts.
While this trade looks like a lot of put options volume, some puts are being bought as others are being sold, which effectively cancels out some of the VRSN trade volume.
Last week, VRSN reported an 8% increase in earnings, which beat analysts' estimates. The Internet security provider made $65 million, or 34 cents a share, in the first quarter, compared to an $8 million loss in the same period last year. Analysts expected the company to report earnings of 28 cents per share in the first quarter. Next quarter, analysts expect earnings-per-share to drop to 26 cents, but rebound back to 28 cents for the third quarter.
VRSN stock declined 0.3% yesterday to close at $24.19. The company has not hit a 52-week low of $16.23 since Nov. 21 last year, but there is plenty of room for VRSN to run higher before hitting a 52-week high of $42.50.
Investors should not interpret high put options activity as a reason to turn bearish or sell their VRSN shares. But at least one customer may be betting that VRSN won't be above the $25 strike come September options expiration.