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Options Trader Making Aggressive Bearish Play On Finisar

Wayne Duggan

Finisar Corporation (NASDAQ: FNSR) shares are down 10.5 percent in the past month, but at least one large option trader is betting things could get worse for Finisar and/or its pending merger partner II-VI, Inc. (NASDAQ: IIVI) in the months ahead.

The Trades

On Friday morning, Benzinga Pro subscribers were alerted to a series of three large Finisar put sweeps.

The first Friday trade was a purchase of 5,000 Finisar put options at an $18 strike price that expire on Sept. 20. The calls were purchased at the ask price of 45.1 cents and represent a $225,500 bearish bet at a break-even price of $17.54. The price suggests 17.9 percent downside for Finisar within the next four months.

The next pair of trades occurred nearly simultaneously about 15 minutes later. Together, the two trades represented the purchase of an additional 9,900 of the same Sept. 20 $18 Finisar puts at the same ask price. All together, the three trades represented a $671,990 bearish bet against Finisar within about 15 minutes.

Even traders that focus exclusively on the stock market watch the options market closely to gain insight into what option traders may be thinking. Due to the relative complexity of the options market, options traders are generally seen as more sophisticated than the typical stock trader. Large options traders are often institutions or wealthy individuals that may have a unique perspective and/or advanced information on a given stock.

Trade War Putting Deal In Jeopardy?

There hasn’t been any major news from Finisar this week, but the U.S. has ramped up its trade war rhetoric with both China and Mexico. Both China and Mexico regulators must sign off on Finisar’s pending merger with II-VI.

Earlier this week, II-VI told investors the U.S. blacklist of Chinese telecommunications company Huawei would not impact the Finisar merger. Although there are no clear reason for regulators to block the deal, Friday’s option trader may be betting the deal actually does run into trade war issues. The trader could also be hedging a long position in the face of potential trade war complications.

Unfortunately, there’s no way to be 100 percent certain whether the buys are a standalone position or a hedge against a larger stock holding. Given the relatively large size of Friday’s trades and the fact that they were split into three roughly 5,000-contract orders, they could easily be a hedge by an institution.

Finisar's stock traded around $21.35 per share at time of publication.

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