U.S. Markets closed

Spruce Point: This FAANG Partner Could Fall 85%

Andrea Kramer

Shares of Israeli printer concern Kornit Digital Ltd (NASDAQ:KRNT) are plummeting today, after Spruce Point Management called the stock a "strong sell" and said it has 75% to 85% downside risk. Specifically, the bearish report noted that "printer orders delivered to Amazon in the U.S. have dramatically slowed" in 2019, and Spruce Point believes "Kornit will lose Amazon's next leg of expansion of the Merch program to Japan." Plus, the firm noted, traders should be wary of the "front-loading of expense recognition," especially considering Kornit's CFO was "named in the option backdating scandal at MRV Communications." Against this backdrop, KRNT puts are flying off the shelves today.

Kornit Digital stock was last seen 10.8% lower to trade at $25.09, set for its worst day since September 2017. Further, nearly 2.5 million shares have traded today, topping the previous annual high of 1.8 million set on Dec. 4. Just last week, on April 29, KRNT shares touched a record high of $29.63. The equity is now on pace to end south of its 40-day moving average for the first time since January. Still, it remains 33% higher year-to-date.

KRNT stock chart may 7

Already today, KRNT has seen more than 2,400 puts cross the tape -- 17 times its average intraday put volume, and on pace to touch an annual high. Meanwhile, just over 1,100 Kornit calls have changed hands, which is 15 times the norm.

Most popular is the now at-the-money May 25 put, with close to 800 contracts exchanged. New buyers of the puts expect KRNT shares to extend their retreat south of $25 through the close on Friday, May 17, when front-month options expire.

However, today's appetite for puts is just more of the same. During the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly 23 puts for every call on the equity.

Elsewhere, while Kornit stock is on the short-sale restricted list today, several shorts are likely cheering the Spruce Point slump. Short interest represents nearly 10% of the security's total available float, or about eight days' worth of pent-up buying demand, at the stock's average pace of trading.