New Trade – $CIEN: Network Down

by Dan March 31, 2014 2:41 pm • Commentary

CIEN reported a bit of a mixed bag in their fiscal Q1 report back on March 6th where the company missed slightly on revenues with the mild positive of better margins, and reiterated current quarter guidance.  Since the opening print on their earnings day, the stock has since sold off almost 16%. with the stock bouncing Friday off of a key technical support level of $22 (green below):

CIEN 1 yr chart from Bloomberg
CIEN 1 yr chart from Bloomberg

On Thursday morning, the company will hold their annual analyst day in New York City. As a trader I am hard pressed to think this will not be a “trade-able” event given the stock’s recent volatility.

As an aside, from my experience, companies generally don’t corral all of the sell side analysts who cover their stock, plus many buy-side analysts in a conference room in NYC once a year to offer commentary that is too similar to their most recent earnings calls. They usually like to give the attendees a reason to attend in person, so they likely want to give some positive product or strategy update. They possibly even held back on the guidance given on March 6th to augment their current quarter outlook or possibly raise the full year. Obviously I have no idea whether they will do this or not, but given the stock’s poor performance since their last report I would be more inclined to think the company wants to help support the stock.

CIEN got hit on earnings recently after margins were on the low end of prior guidance. Management is likely to address that issue going forward, which might lead to some renewed enthusiasm. Another positive is the 19% short interest, which could lead to some quick-on-the-trigger covering into and out of the event if management talks a good game.

TRADE: CIEN ($22.65) Bought May 23/27 call spread for .97

-Bought May 23 call for 1.15

-Sold May 27 call at .18

Break-Even on Expiration:

Profits: btwn 23.97 and 27 of up to 3.03, max gain of 3.03 above 27

Losses: lose up to .97 below 23.97 with max loss of .97 below 23.00


This is a stock that sold off from recent highs but possibly just held support. This is a structure that plays for that bounce to continue, with the analyst event as a catalyst, but the call spread is a defined risk way for long exposure in case the bounce fails.