Ciena Corporation Earnings Preview: 2 Trades for CIEN Stock

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Networking equipment specialist Ciena Corporation (CIEN) will enter the earnings confessional ahead of the open on Thursday, and Wall Street has laid out relatively tame expectations for the report.

Global economic growth expectations have tempered corporate network upgrades, though Ciena is still benefitting from increased bandwidth demand and fiber upgrades on the major Internet service providers. As such, there are still opportunities to be found for savvy CIEN stock options traders.

For the company’s fiscal third-quarter report, the consensus is for a profit of 34 cents per share, two cents better than the same quarter last year. Sales, meanwhile, are expected to rise 4.4% year-over-year to $630 million in the third quarter. Historically, Ciena has bested Wall Street’s expectations in all but two of the past eight quarters, setting the firm on solid fundamental footing.

As such, it should come as no surprise that some in the brokerage community have set their sights a bit higher. Specifically, EarningsWhipser.com reports that Ciena’s third-quarter whisper number comes in at 37 cents per share, a full three cents better than the consensus. Hitting this target could bring plenty of buyers back to the table.

CIEN Stock By the Numbers

This earnings optimism from analysts shouldn’t be too surprising, however, judging by ratings data from Thomson/First Call. For instance, CIEN has attracted just three “holds” and one “sell” rating compared to a hefty 17 “buy” ratings. Additionally, the 12-month price target for CIEN stock rests at $29, a 30% premium to current levels around $22.

That said, not everyone is bullish on CIEN’s prospects. Despite a 14% decline in the number of shares sold short, some 17.5 million shares of CIEN stock are still held by short sellers. As a result, some 19% of CIEN’s float, or shares available for public trading, remain sold short heading into the company’s quarterly report, creating the potential for a short-squeeze situation.

Options traders are also taking a cautious stance when it comes to CIEN. While the September put/call open interest ratio currently rests at a somewhat bullish reading of 0.64, the weekly September 4 series ratio comes in higher at 0.75 — indicating a fair degree of skepticism heading into the company’s quarterly report. Furthermore, the lack of heavy call OI also hints that short sellers don’t appear to be worried about a post-earnings rally, since calls are often used as hedges for short positions.

CIEN 9-1-2015
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Overall, weekly September 4 implieds are pricing in a potentially significant post-earnings move of about 8.7% for CIEN stock. This places the upper bound at $24.46, while the lower bound lies at $20.54.

A post-earnings drop would push the shares below their 200-day moving average and test support near $20. A rally, meanwhile, could have legs if CIEN eclipses the $24 region, as it would put the stock above all major short-term technical hurdles, save resistance at $26.

2 Trades for CIEN Stock

Call Spread: With Ciena still benefiting from a fiber rollout, and the stock somewhat devalued following the recent market selloff, the path of least resistance for CIEN stock should be to the upside. As such, traders looking to bet on a post-earnings rally for CIEN might want to consider a September $23/$24 bull call spread. At the close of trading on Monday, this spread was offered at 40 cents, or $40 per pair of contracts. Breakeven lies at $23.40, while a maximum profit of 60 cents, or $60 per pair of contracts, is possible if CIEN closes at or above $24 when September options expire.

Put Sell: On the other hand, Wall Street has been a bit unstable lately, leading to a bit of cautious trading. Traders with a bullish-to-neutral bias on CIEN could still bank a handy profit by considering a weekly September 4 series $19 put sell position.

After the close last night, this put was bid at 23 cents, or $23 per contract. The upside to this put sell strategy is that you keep the premium as long as CIEN stock closes above $19 when these options expire at the end of the week. The downside is that, if CIEN stock trades below $19 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $19 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/ciena-corporation-earnings-preview-2-trades-cien-stock/.

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