Juniper (JNPR) Down But Maybe Not Out, Way to Play a Bounce With an Almost 3 to 1 Payout By Aug Expiration

by Dan June 30, 2011 3:14 pm • Commentary

JNPR ($31.40)

-stock is down 30% from the 52 week highs made in March and only 5% off of the recent lows….

-Stock got hit hard in early June after the presentation of CEO Kevin Johnson at Merrill Lynch’s Technology Conference on June 1st where he had the following to say: 

I look at our Q2, and Q2 is traditionally backend loaded and I think the linearity of this Q2 would reinforce a backend loaded quarter and we’re staying focused on that. But, I think there’s reason to be somewhat cautious in the near-term but yet maintaining optimism about the long-term growth models that we’ve outlined and the demand for networking long-term.

I think this economic recovery is still unfolding and my view has been consistent that we are going to see twists and turns as this economy recovers. In fact, on the switching marketplace, in Q1 this year, the entire addressable market declined by 12% quarter-over-quarter and it declined 9% year-over-year. And I look back over the last 10 years on Q4 to Q1 transitions of total addressable market of Ethernet switching and there was only one other year that had bigger declines. And so that says there was an element of lower sales of port and some smaller amount of impact to ASP. So I think there’s reason to be somewhat cautious.

This commentary was taken as a soft guide down and the stock sold off about 20% in the following 2 weeks until recently bottoming….If in fact the comments were actually just that, cautious, and the company was able to perform you could see a little bit of a short squeeze with short interest at about 3% of the float and some longs looking to get back in.

-Technically the stock looks like it could get back to the support level of ~$35 that it broke below and near its 200 day moving average of ~$36 on any good news.

[caption id="attachment_3013" align="aligncenter" width="300" caption="6 month JNPR chart Provided by Livevol Pro"][/caption]

-At the money implied vol in August which catches earnings is offered at about 38.50 vs the 30 day realized of 45.4o and 60 day realized of 35.50….vols seem pretty fair.

MY VIEW: If the market is going to rally into the new quarter and into earnings sooner or later some of the laggards like JNPR which is down 15% ytd will likely participate….I remain very skeptical of the market and the fact that the market turned so quickly leads me to not want to chase things too aggressively, would like to wait for a pullback….but that doesn’t stop me from finding opportunities in laggards that may have been unfairly punished….in names like this I want to define my risk….If for example JNPR did pre-announce or miss and guide down then the stock would most certainly go back to 25…..


JNPR ($31.40) BUY the AUG 33 / 35 Call Spread for .55

-Buy Aug 33 Call for 1.05 and

-Sell Aug 35 Call at .50

Break-Even On Aug Expiration:

Upside: stock btwn 33 and 33.55 lose up to .55, stock btwn 33.55 and 35 make up to 1.45, stock up above 35 make full 1.45.

Worst Case:  Stock below 33 and you lose full .55 or less than 2% of the underlying