CTXS Reports Q1 Tonight- Stock At 11 Year Highs-Bet You Can’t Guess What I Am Thinking??

by Dan April 27, 2011 1:32 pm • Commentary

CTXS reports Q1 earnings tonight after the close.

-Stock is trading within a few percentage points of the 11 year high and up 12.5% year to date, with half of those gains coming last week following VMW‘s strong earnings and guidance.

-Options Market implying about a 7% move vs the 8 qtr average move of ~6.5% ( 2 of the 8 moves are above ~11% while all others are ~5.5% or below.

-Analyst community fairly mixed on the name with 13 Buys, 18 Holds and 1 Sell.  Short interest near a 2 year high at a little below 3% of the float.

MY VIEW: This is a very expensive stock, trading at p~45x this year’s earnings and ~33x next year’s with expected earnings and revenue growth of ~13% for this year and next.

-But in markets like this you don’t short names like this on valuation alone.  And when one considers the company’s ~$14.5 billion market cap the company could easily be in play for one of the much slower growing tech behemoths with tons of cash on their balance sheets.  CTXS has spent the better part of the last few years focusing on their cloud offerings (I am actually using their GoToMyPC product right now from a hotel room and couldn’t be happier) and these sorts of product offerings could easily catch the eye of those who are inclined to buy vs build.

-But all that doesn’t keep me from wanting to short the stock into the print…..but it does keep me from expressing that view by shorting the stock outright.

TRADE: Express Near Term Bearish View Through May Put Fly

CTXS (ref 76.60) BUY May 72.5 / 70 / 67.50 Put Fly for ~.25  (Screens are .00 at .40, I just paid .25)

-Buy 1 May 72.5 Put for 1.81

-Sell 2 May 70 Puts at 2.28 (1.14 each)

-Buy 1 May 67.5 Put for .70

Break-Even On May Expiration:

Upside: 72.50 or Higher lose .25


btwn 72.25 and 70 make up to 2.25

Best Case: at 70 ( down ~8.5%) make full 2.25 or 10x your money.

Stock Lower than 70: btwn 70 and 67.50 payout trails off, 67.50 or lower lose .25 in premium.

TRADE RATIONALE: If the company only meets and keeps guidance in line then the stock should give back some of last weeks gains….I like the 10 to 1 payout of the Put Butterfly if the stock is down ~8.5% at 70 on May expiration.  $70 would be right back to the level it broke out at a month ago and approximately its 100 day moving average.

-I don’t want to spend a lot of premium to make these bearish bets in what appears to be a raging bull market, but as stated above I like the risk reward here…..