Option Trader Betting Juniper Networks Weakness Will Continue

Juniper Networks, Inc. JNPR shares are down 5.6% in the past year, but at least one large option trader is betting Juniper’s earnings report expected out later this month won’t save the slumping stock.

The Trade

On Monday morning, Benzinga Pro subscribers received an option alert related to an unusually large Juniper call sale.

At 10:18 a.m., a trader bought 698 Juniper call options at a $25.50 strike price that expire on July 26. The calls were bought at the bid price of $1.58 and represent a $110,284 bearish bet. Prior to the large trade, the open interest for the July 26 Juniper $25.50 calls was zero contracts.

Even traders that focus exclusively on stocks watch the options market closely to gain insight into what options traders may be thinking. Due to the relative complexity of options trading, options traders are often seen as more advanced than the typical stock trader. Many of these options traders are institutions or wealthy individuals that may have a unique take on a company.

Low Earnings Expectations?

The bearish trade comes ahead of Juniper’s second-quarter earnings report expected out on July 25. The break-even price for the calls bought Monday would be $27.08, suggesting earnings won't generate much upside from Monday’s $26.39 level.

The call sale may also have come in response to a Juniper downgrade by Citigroup on Monday. The analyst cited “too lofty 2H expectations” and market share losses in lowering Juniper from a Neutral rating to a Sell rating. Monday’s option trader may have taken a closer look at the near-term outlook for Juniper following the downgrade.

Unfortunately, it’s impossible to be 100% certain if an option trade is a hedge or not. Stockholders often use call options to hedge against a larger bearish stock position. Given the Juniper option trades’ relatively small size, it’s unlikely to be a hedge in this case.

Juniper's stock traded around $26.46 per share at time of publication.

Correction: A previous version of this story said the option calls were "sold," not "bought."

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Photo courtesy of Juniper Networks.