Options Traders Target Key Level Ahead of VeriFone Earnings
Payment processor VeriFone Systems Inc (NYSE:PAY) is scheduled to report earnings after the close today, and investors are hoping for a post-earnings reaction similar to last December's report, when the stock jumped 8.6% in the session afterward. Ahead of tonight's event, options traders are pricing in extremely high volatility expectations for PAY shares, which are trading around key technical levels.
Starting on the charts, the security is up 1.8% at $18.55 today, putting it right between two crucial price points. For instance, the $18 level is roughly equivalent to a 61.8% Fibonacci retracement of the stock's 52-week low and high. Looking at a weekly chart, PAY closed right near this region at the beginning of November, and the following week it tested this level, only to be rejected.
Just above VeriFone's current perch is the $18.80 price point, representing a 50% Fibonacci retracement of its annual low and high. A number of times during the past year this region has acted as resistance, and it's now home to the 50-week moving average.
Turning to the options pits, at-the-money implied volatility data suggests traders are pricing in a 13.3% swing for tomorrow's session. This is well above the stock's average post-earnings move if you guy back eight quarters, which is just 8.3%. Meanwhile, some are using this as an opportunity to sell premium.
Specifically, the front-month December 18 put saw a notable increase in open interest during the past 10 days, with more than 3,200 positions added. However, data from the major options exchanges confirms almost exclusive sell-to-open activity, meaning options traders are expecting PAY stock to hold above $18 through Friday's close, when the contracts expire.
That's not to say everyone's bullish on the equity. Short interest currently represents almost 11% of VeriFone Systems' float, and going by average daily volumes, it would take these bears more than 11 days to cover. Plus, just five of 17 brokerage firms say the stock is a "buy" or "strong buy."