Burned by FireEye Inc (FEYE) Stock? Try These Rebound Trades

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There was much hype surrounding FireEye Inc (NASDAQ:FEYE) back in 2015. The company had just come off revenue growth of 163% the year prior, and FireEye was the first cybersecurity firm to be certified under the Safety Act. But the company fell prey to a major faux pas in the technology world — it didn’t innovate fast enough, and FEYE stock is now paying the price.

Burned by FireEye Inc (FEYE) Stock? Try These Rebound Trades

In 2014, the cloud business model was breaking onto the scene, and it was creating enough of a stir that even major players like Cisco Systems, Inc. (NASDAQ:CSCO) and Microsoft Corporation (NASDAQ:MSFT) were making significant moves into the new market. It was a lesson FireEye learned too late, as evidenced by the company’s recent quarterly earnings report.

Despite a major push and a plethora of incentives to boost sales, FireEye’s revenue of $184.7 million missed Wall Street’s estimates of $191 million. But the topline figure wasn’t the only concern, as FireEye guided to a 3% decline in first-quarter revenue, compared to the Street’s expected 5% growth.

Among the myriad of problems facing the company, including slower corporate enterprise spending and increased competition in the cybersecurity market, FireEye’s late restructuring into a cloud-subscription model is almost unforgivable — especially when blue-chip security firms were already headed that direction.

But there is a bright side for FEYE stock investors, at least over the short term. Barring any other major surprises or management short-sightedness (CFO Mike Berry and board chairman David DeWalt are both stepping down, which could help), the worst appears to be already factored into FEYE’s price. As such, literally any positive news for the company could kick off a short-term bounce.

As usual, potential drivers for such a bounce would come from FEYE’s sentiment backdrop. For instance, Thomson/First Call reports that 21 of the 31 analysts following FEYE stock rate the shares a “hold” or worse. The fact that there aren’t more “sell” ratings after last week’s quarterly report tells me that Wall Street is ready to reward FireEye for moving in the right direction. In other words, upgrades are a distinct possibility following any positive progress.

Elsewhere, short sellers are already taking profits on FEYE. As of the most recent reporting period, the number of FEYE shares sold short dropped by 3% to 20.3 million. Still, roughly 13.3% of FireEye’s float remains sold short, and could spark a round of profit taking or a covering rally if the stock can find its feet and move higher.

FEYE stock
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Judging by FEYE’s options configuration, short sellers may be preparing for just such an outcome. Currently, the March put/call open interest ratio for FEYE stock rests at 0.44, with calls more than doubling puts among options set to expire on March 17.

FEYE is trading well below all major put and call accumulations in the series, with the $13 strike home to peak put OI and $14 representing the next significant call OI strike, leaving little in the way of potential options headwinds in the short term.

March implieds, meanwhile, are pricing in a potential move of about 12.6% for volatile FEYE stock. This places the upper bound at $12.39, while the lower bound rests at $9.61.

2 Trades for FEYE Stock

Call Spread: Bearish sentiment on an underperforming stock is to be expected, but FEYE stock is trading at oversold levels following a post-earnings beating. With said beating now out of the way, FEYE should trend higher, with any positive news providing additional lift.

Those traders looking to take a risk on an FEYE comeback over the short-term might want to consider a March $12/$13 bull call spread. At last check, this spread was offered at 19 cents, or $19 per pair of contracts. Breakeven lies at $12.19, while a maximum profit of 81 cents, or $81 per pair of contracts, is possible if FEYE stock closes at or above $13 when March options expire.

Put Sell: Those looking for a more bullish-to-neutral position may want to look at a FEYE March $10 put sell position. At last check, this put was bid at 25 cents, or $25 per contract. Remember that you keep the initial premium received as long as FEYE stock closes above $10 when March options expire. However, if FEYE trades below $10 ahead of expiration, you could be assigned 100 shares of stock for every put sold at a cost of $10 per share.

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


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/try-these-feye-stock-rebound-trades/.

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