Adobe Sees Blood Bath, Boosting Demand for Put Options
The blood bath that has engulfed $Adobe(ADBE.US$'s stock is boosting demand for a hedge against the share slump.
About halfway through the trading day, more than 200,000 Adobe options were traded, putting them among the top 10 heavily-traded stock options. The most-active contracts are put options that give the holders the right to sell Adobe shares at $480 each before the trading day, which can help cushion the blow should losses deepen.
The holders of call options that give the holders the right to buy shares at prices above the current level are walking away as they sought to limit their losses. Volume reached 5,354 on call options with a $500 strike price as of 12:18 p.m. New York, making it the most-active contract. Holders are rushing for the exit, sending prices sinking more than 99% just hours before they expire.
The negative sentiment for Adobe swept the market at a time when stock options, market index options and market index futures are seeing simultaneous expirations Friday, an event known as the "triple witching."
Adobe saw a net outflow of $465 million around midday Friday, with the drawdown led by the top 10 largest orders. The exodus comes at a time when even the major indices are in the red, compounded by the volatility that's driven by triple witching. About $5 trillion in notional value of options in stocks, exchange-traded funds and equity indexes are due to expire during the quarterly triple witching, according to a MarketWatch report.
Adobe shares sank more than 14% after the company on Thursday gave fiscal second quarter guidance that trailed analysts' estimates. The company yesterday said it sees total revenue in the period ending on May 1 reaching $5.25 billion to $5.30 billion. That's lower than the $5.31 billion expected by analysts tracked by FactSet, according to a Dow Jones report.
While Adobe Chair and Chief Executive Officer Shantanu Narayen touted the company's job of "harnessing the power of generative AI to deliver groundbreaking innovation across our product portfolio," investors weren't impressed.
Adobe may not be able to monetize artificial intelligence as fast as investors want, and monetization is likely later in 2024 and into 2025, MarketWatch quoted Jefferies analyst Brent Thill as saying.
Still, the negative sentiment may be waning after the day's massive selloff. Eleven of the 15 technical indicators tracked by Moomoo are signaling that the stock is now oversold and the trend is bullish.
Unusual activities tracked by Moomoo also showed a block trade where the seller stands to collect a $1.1 million premium for put options that give the holder the right to sell 160,000 Adobe shares by May 17. That block trade, priced at $6.97 a share, was posted at 9:35:48 with the underlying stock at $500.70.
Disclaimer: Options trading entails significant risk and is not appropriate for all customers. It is important that investors read Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request. Moomoo does not guarantee favorable investment outcomes. The past performance of a security or financial product does not guarantee future results or returns. Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.
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Moomoo Senior News and Community Manager
Former editor at Bloomberg, then Lazard Asset Management. Posts aren’t investment advice. Views are just mine.
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