Polycom is not exactly your every day popular Tech stock, but the options are fairly liquid, and its history of big earnings moves makes it attractive for options trading.
The last 3 quarters Polycom has moved +15.45%, +10.87%, and -10.18% the day after reporting earnings.
Polycom's weekly chart is most interesting to me, as shares broke out at a key $40 level, and out of an ascending triangle, measuring a move to $72.50, which happens to be the exact highs from the Tech bubble for shares in 2000. The ADX of 47 on the weekly charts shows that this stock is in a super strong trend. Shares have near term support at $45 and resistance at $52 highs. Shares could easily push past $55 on strong numbers, or sink below $45 on a weak forecast.
The Company is a play on workforce communications and collaboration with its telepresence, video and voice solutions allowing people to connect around the World. Polycom has a market cap of $4.4B, shares trading 19.6X forward earnings, 3.63X sales and 9X cash value with around $425M in cash on the books, and zero debt. There is a minimal short float of 3.15%, 2.34 days to cover. April has been the second strongest seasonal month for shares with an average 5.67% return the past 5 years. Polycom recorded 26.7% sales growth Q/Q and 151.32% EPS growth.
Polycom has not seen a great deal of options activity into the quarter, a few buyers of the May $52.50 calls at the $1.40 offer today which traded more than 600 contracts. May IV of 46.4% compares to June at 39.73%. The May $50 straddle trades for $5.35, expecting roughly a 10% move, although not just on earnings with 4 weeks until expiration, so the IV may actually be cheap here considering its history. The May $50 puts have seen some accumulation this week with 1,119 in open interest, but really not much action in May options, so I will be watching tomorrow leading up until the report.
What is interesting is the amount of open interest in July options, with the $45 calls housing 5,344 contracts, and the $55 calls with 3,372 contracts. Also, the July $40 and $37.50 puts each with open interest above 3,500. I can trace these trades back to January for the most part when a trader sold a chunk of July $40 puts to open, and also bought 3,120 July $50 calls at $2.25, while another bullish risk reversal remains in the $45/$37.50 strikes also. Then, on February 14th, a trader bought 3,120 July $50/$55 call spreads at $2.30.
The July option positions open have a major bullish bias, so that helps gauge sentiment in this name, where the "smart money" is betting, and also makes Polycom a buy if it were to get hit on results.
This leaves us with a growth stock at a fairly good value, bullish options sentiment, and a strong chart, so I would be overall bullish the name, although a risky own considering the magnitude of earnings moves. I also like the recent acquisition of video content company Accordent for $50M, and the recent announcement of a Cloud-Based Media Service, so the Company seems headed into new growth markets.
Looking over some recent Analyst coverage in the name from April I see that Bank of America-Merrill reiterated a Buy on 4-19 with a price target boost to $56 from $50, expecting an in-line quarter and on track for 20% operating margins, benefiting from video conferencing and UCC adoption.
The way the IV Skew is the June $55 calls look relatively cheap, and one bullish trade with a low risk is the May/June $55 calendar call spread at $0.35, targeting a 10% move higher, and basically In-Line with Street target prices for shares.
For a more Neutral strategy, you can add the May/June $45 Calendar Put Spread at $0.30 for a Double Calendar $55/$45 May/June at $0.65. This trade has a wide range of profitability from around $42 to $60.
Disclaimer: This is Not a Trade Recommendation (No Position at Time of Writing)
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