Adobe Systems, Inc. (ADBE) was punished on Wednesday for an earnings report that produced guidance slightly below analyst expectations. The stock dropped as much as 26% after ADBE guided Q4 earnings to $0.48-0.54 EPS vs. $0.53 analyst consensus and Q4 revenues $950M to $1.0B vs. $1.03B analyst consensus (from briefing.com).
The severity of the sell-off did not seem justified by the small size of the miss. Perhaps the selling was more about a complete reversal of the over-excitement from two weeks ago on the heels of Apple’s announcement that the company is relaxing earlier restrictions to its iOS Developer Program license (sections 3.3.1, 3.3.2 and 3.3.9). The supposed implication for Adobe is that its tools can now be used in the production of applications (as long as they do not download code). The reversal in this euphoria was massive:
- A near record 109 million shares traded (current record is 136 million shares traded on a 31% drop on May 25, 1990).
- Volume almost 12 times recent average volume of 9.2M shares.
- Volume almost 21% of the 523 million float.
Such a massive response looked like a wash-out to me, so I bought the stock near the open to play a short-term bounce. The natural stop loss is at the low of the day. The chart below summarizes the recent trading action. In particular, note how this week’s sell-off accomplished in one day what it took six days to do in response to June’s earnings disappointment – with the stock having almost the exact starting and ending points. (Click for a larger view).
*Chart created using TeleChart:
The action in options on Wednesday was also very dramatic. In particular, open interest surged on puts and calls, particularly those expiring in October, November, and January. I am very intrigued by the focus on calls in the face of all the selling in the stock. It makes the put action look like small hedges to those bullish bets. The list of the change in open interest from Wednesday to Thursday is posted at the end of this piece, sorted by the change in open interest in descending order.
Everything seems to be in place for a day where sellers flushed and washed themselves out of the system, except a friend of mine threw in the possibility that most of this massive action was the result of the dreaded tradebots. I have no data for assessing the impact of the tradebots and quants, but with 20% of the entire float trading hands and most of that happening within the first few hours of trading, I have to respect the possibilities. However, given the good risk/reward ratio on the bullish trade here using the same technicals that drive many automated programs, I am willing to take on the possibility that the machines ran counter to the opinions of the humans on Wednesday.
Change in ADBE options open interest from 9/22/10 to 9/23/10, sorted by the change in open interest in descending order
(Source: Yahoo!finance options chain)
ADBE101016C27 CALL at 27 exp. 16-Oct-2010 5538 to 16663 = +11125
ADBE101016C31 CALL at 31 exp. 16-Oct-2010 3278 to 11892 = +8614
ADBE110122P24 PUT at 24 exp. 22-Jan-2011 236 to 8340 = +8104
ADBE101016C26 CALL at 26 exp. 16-Oct-2010 412 to 8018 = +7606
ADBE110122C30 CALL at 30 exp. 22-Jan-2011 2893 to 9663 = +6770
ADBE101016P26 PUT at 26 exp. 16-Oct-2010 645 to 6323 = +5678
ADBE101016C28 CALL at 28 exp. 16-Oct-2010 722 to 5425 = +4703
ADBE101120C29 CALL at 29 exp. 20-Nov-2010 13 to 3904 = +3891
ADBE101016P27 PUT at 27 exp. 16-Oct-2010 7902 to 11186 = +3284
ADBE101016C29 CALL at 29 exp. 16-Oct-2010 2384 to 5525 = +3141
ADBE101016P25 PUT at 25 exp. 16-Oct-2010 739 to 3855 = +3116
ADBE101016C30 CALL at 30 exp. 16-Oct-2010 8672 to 11691 = +3019
ADBE101016C25 CALL at 25 exp. 16-Oct-2010 540 to 3348 = +2808
ADBE110122C26 CALL at 26 exp. 22-Jan-2011 277 to 2663 = +2386
ADBE110122P22.5 PUT at 22.5 exp. 22-Jan-2011 2370 to 4723 = +2353
ADBE101016C24 CALL at 24 exp. 16-Oct-2010 253 to 2394 = +2141
ADBE101120P25 PUT at 25 exp. 20-Nov-2010 0 to 1997 = +1997
ADBE101120C25 CALL at 25 exp. 20-Nov-2010 0 to 1537 = +1537
ADBE101120C30 CALL at 30 exp. 20-Nov-2010 129 to 1387 = +1258
ADBE110122P26 PUT at 26 exp. 22-Jan-2011 689 to 1928 = +1239
ADBE110122C28 CALL at 28 exp. 22-Jan-2011 520 to 1570 = +1050
ADBE101016C34 CALL at 34 exp. 16-Oct-2010 12726 to 11730 = -996
ADBE101016P31 PUT at 31 exp. 16-Oct-2010 7019 to 6082 = -937
ADBE110416P23 PUT at 23 exp. 16-Apr-2011 180 to 1055 = +875
ADBE101016P30 PUT at 30 exp. 16-Oct-2010 4017 to 3168 = -849
ADBE110122C31 CALL at 31 exp. 22-Jan-2011 764 to 1576 = +812
ADBE110416P26 PUT at 26 exp. 16-Apr-2011 73 to 872 = +799
ADBE101016P24 PUT at 24 exp. 16-Oct-2010 5574 to 6345 = +771
ADBE101016P32 PUT at 32 exp. 16-Oct-2010 4004 to 3252 = -752
ADBE120121P25 PUT at 25 exp. 21-Jan-2012 453 to 1113 = +660
ADBE101120C32 CALL at 32 exp. 20-Nov-2010 62 to 693 = +631
ADBE110122P25 PUT at 25 exp. 22-Jan-2011 3351 to 3972 = +621
ADBE110416C29 CALL at 29 exp. 16-Apr-2011 70 to 687 = +617
ADBE110416P25 PUT at 25 exp. 16-Apr-2011 96 to 700 = +604
ADBE110416C28 CALL at 28 exp. 16-Apr-2011 54 to 655 = +601
ADBE101016P22.5 PUT at 22.5 exp. 16-Oct-2010 1018 to 1617 = +599
ADBE110122C25 CALL at 25 exp. 22-Jan-2011 968 to 1553 = +585
ADBE110122C27 CALL at 27 exp. 22-Jan-2011 920 to 1497 = +577
ADBE101120C22.5 CALL at 22.5 exp. 20-Nov-2010 0 to 569 = +569
ADBE101120P22.5 PUT at 22.5 exp. 20-Nov-2010 0 to 568 = +568
ADBE120121C25 CALL at 25 exp. 21-Jan-2012 300 to 809 = +509
ADBE110416C30 CALL at 30 exp. 16-Apr-2011 177 to 642 = +465
ADBE110416P20 PUT at 20 exp. 16-Apr-2011 16 to 465 = +449
ADBE110122C36 CALL at 36 exp. 22-Jan-2011 690 to 1116 = +426
ADBE110416P17.5 PUT at 17.5 exp. 16-Apr-2011 25 to 446 = +421
ADBE110122C29 CALL at 29 exp. 22-Jan-2011 806 to 1168 = +362
ADBE110416C24 CALL at 24 exp. 16-Apr-2011 15 to 368 = +353
ADBE110416C26 CALL at 26 exp. 16-Apr-2011 33 to 358 = +325
ADBE110122C20 CALL at 20 exp. 22-Jan-2011 256 to 575 = +319
ADBE101016C35 CALL at 35 exp. 16-Oct-2010 5416 to 5117 = -299
ADBE101016C33 CALL at 33 exp. 16-Oct-2010 12310 to 12605 = +295
ADBE110416C27 CALL at 27 exp. 16-Apr-2011 57 to 345 = +288
ADBE110122C22.5 CALL at 22.5 exp. 22-Jan-2011 423 to 709 = +286
ADBE101016C32 CALL at 32 exp. 16-Oct-2010 3014 to 3297 = +283
ADBE101016C22.5 CALL at 22.5 exp. 16-Oct-2010 13 to 254 = +241
ADBE101016P34 PUT at 34 exp. 16-Oct-2010 1285 to 1050 = -235
ADBE120121C20 CALL at 20 exp. 21-Jan-2012 62 to 289 = +227
ADBE101016C20 CALL at 20 exp. 16-Oct-2010 18 to 235 = +217
ADBE120121C30 CALL at 30 exp. 21-Jan-2012 302 to 518 = +216
ADBE110416P15 PUT at 15 exp. 16-Apr-2011 0 to 214 = +214
ADBE110122P33 PUT at 33 exp. 22-Jan-2011 882 to 671 = -211
ADBE101120P20 PUT at 20 exp. 20-Nov-2010 0 to 200 = +200
ADBE101120C31 CALL at 31 exp. 20-Nov-2010 19 to 216 = +197
ADBE110122C24 CALL at 24 exp. 22-Jan-2011 109 to 300 = +191
ADBE120121C22.5 CALL at 22.5 exp. 21-Jan-2012 27 to 212 = +185
ADBE101016P28 PUT at 28 exp. 16-Oct-2010 5705 to 5534 = -171
ADBE120121P20 PUT at 20 exp. 21-Jan-2012 131 to 295 = +164
ADBE101016P20 PUT at 20 exp. 16-Oct-2010 268 to 429 = +161
ADBE110122C40 CALL at 40 exp. 22-Jan-2011 3095 to 3254 = +159
ADBE101016P36 PUT at 36 exp. 16-Oct-2010 1345 to 1191 = -154
ADBE110416C25 CALL at 25 exp. 16-Apr-2011 50 to 201 = +151
ADBE130119P20 PUT at 20 exp. 19-Jan-2013 10 to 159 = +149
ADBE120121P22.5 PUT at 22.5 exp. 21-Jan-2012 55 to 199 = +144
ADBE110122P17.5 PUT at 17.5 exp. 22-Jan-2011 1231 to 1364 = +133
ADBE130119P15 PUT at 15 exp. 19-Jan-2013 0 to 124 = +124
ADBE120121P17.5 PUT at 17.5 exp. 21-Jan-2012 34 to 145 = +111
ADBE110122P32 PUT at 32 exp. 22-Jan-2011 504 to 613 = +109
ADBE110122P29 PUT at 29 exp. 22-Jan-2011 227 to 335 = +108
ADBE101016P33 PUT at 33 exp. 16-Oct-2010 10199 to 10094 = -105
ADBE110122P27 PUT at 27 exp. 22-Jan-2011 2275 to 2173 = -102
ADBE101016C36 CALL at 36 exp. 16-Oct-2010 6499 to 6399 = -100
ADBE110416P30 PUT at 30 exp. 16-Apr-2011 92 to 190 = +98
ADBE101120P29 PUT at 29 exp. 20-Nov-2010 220 to 315 = +95
ADBE101120P17.5 PUT at 17.5 exp. 20-Nov-2010 0 to 86 = +86
ADBE120121P30 PUT at 30 exp. 21-Jan-2012 2351 to 2433 = +82
ADBE110416C31 CALL at 31 exp. 16-Apr-2011 129 to 209 = +80
ADBE110416P28 PUT at 28 exp. 16-Apr-2011 10 to 90 = +80
ADBE110416P24 PUT at 24 exp. 16-Apr-2011 182 to 258 = +76
ADBE101016P29 PUT at 29 exp. 16-Oct-2010 9036 to 8961 = -75
ADBE110122P30 PUT at 30 exp. 22-Jan-2011 4208 to 4135 = -73
ADBE130119C30 CALL at 30 exp. 19-Jan-2013 15 to 85 = +70
ADBE101016P37 PUT at 37 exp. 16-Oct-2010 330 to 262 = -68
ADBE110416C20 CALL at 20 exp. 16-Apr-2011 0 to 67 = +67
ADBE110122C32 CALL at 32 exp. 22-Jan-2011 857 to 791 = -66
ADBE101016P35 PUT at 35 exp. 16-Oct-2010 719 to 654 = -65
ADBE101120C33 CALL at 33 exp. 20-Nov-2010 215 to 277 = +62
ADBE120121C35 CALL at 35 exp. 21-Jan-2012 307 to 369 = +62
ADBE101120P30 PUT at 30 exp. 20-Nov-2010 71 to 128 = +57
ADBE120121C15 CALL at 15 exp. 21-Jan-2012 0 to 55 = +55
ADBE130119P25 PUT at 25 exp. 19-Jan-2013 70 to 122 = +52
ADBE110416C32 CALL at 32 exp. 16-Apr-2011 223 to 272 = +49
ADBE110122C33 CALL at 33 exp. 22-Jan-2011 1755 to 1804 = +49
ADBE101120P33 PUT at 33 exp. 20-Nov-2010 442 to 398 = -44
ADBE110122C34 CALL at 34 exp. 22-Jan-2011 745 to 788 = +43
ADBE130119P30 PUT at 30 exp. 19-Jan-2013 0 to 40 = +40
ADBE130119C45 CALL at 45 exp. 19-Jan-2013 90 to 53 = -37
ADBE130119C25 CALL at 25 exp. 19-Jan-2013 0 to 35 = +35
ADBE101120C34 CALL at 34 exp. 20-Nov-2010 346 to 311 = -35
ADBE110122P28 PUT at 28 exp. 22-Jan-2011 1053 to 1021 = -32
ADBE120121C17.5 CALL at 17.5 exp. 21-Jan-2012 0 to 31 = +31
ADBE101120P31 PUT at 31 exp. 20-Nov-2010 118 to 147 = +29
ADBE120121P15 PUT at 15 exp. 21-Jan-2012 45 to 70 = +25
ADBE110122C35 CALL at 35 exp. 22-Jan-2011 5247 to 5222 = -25
ADBE110122C37 CALL at 37 exp. 22-Jan-2011 833 to 808 = -25
ADBE101120C20 CALL at 20 exp. 20-Nov-2010 0 to 24 = +24
ADBE120121P35 PUT at 35 exp. 21-Jan-2012 410 to 387 = -23
ADBE110416C23 CALL at 23 exp. 16-Apr-2011 0 to 23 = +23
ADBE110416C33 CALL at 33 exp. 16-Apr-2011 438 to 461 = +23
ADBE120121C40 CALL at 40 exp. 21-Jan-2012 1776 to 1798 = +22
ADBE110416P35 PUT at 35 exp. 16-Apr-2011 151 to 172 = +21
ADBE101016C38 CALL at 38 exp. 16-Oct-2010 2603 to 2583 = -20
ADBE120121P40 PUT at 40 exp. 21-Jan-2012 359 to 342 = -17
ADBE110122P20 PUT at 20 exp. 22-Jan-2011 1309 to 1293 = -16
ADBE110122P12.5 PUT at 12.5 exp. 22-Jan-2011 150 to 165 = +15
ADBE110122C45 CALL at 45 exp. 22-Jan-2011 1992 to 2006 = +14
ADBE110122C15 CALL at 15 exp. 22-Jan-2011 22 to 36 = +14
ADBE130119P17.5 PUT at 17.5 exp. 19-Jan-2013 0 to 13 = +13
ADBE110416C35 CALL at 35 exp. 16-Apr-2011 253 to 265 = +12
ADBE110416P27 PUT at 27 exp. 16-Apr-2011 83 to 95 = +12
ADBE110416C34 CALL at 34 exp. 16-Apr-2011 254 to 265 = +11
ADBE110122P10 PUT at 10 exp. 22-Jan-2011 183 to 193 = +10
ADBE130119C35 CALL at 35 exp. 19-Jan-2013 31 to 41 = +10
ADBE110122P34 PUT at 34 exp. 22-Jan-2011 251 to 241 = -10
ADBE110416P33 PUT at 33 exp. 16-Apr-2011 204 to 214 = +10
ADBE101120C37 CALL at 37 exp. 20-Nov-2010 263 to 272 = +9
ADBE130119P45 PUT at 45 exp. 19-Jan-2013 10 to 18 = +8
ADBE110416P40 PUT at 40 exp. 16-Apr-2011 111 to 119 = +8
ADBE101016P38 PUT at 38 exp. 16-Oct-2010 101 to 93 = -8
ADBE120121P45 PUT at 45 exp. 21-Jan-2012 178 to 186 = +8
ADBE130119P35 PUT at 35 exp. 19-Jan-2013 0 to 8 = +8
ADBE101016C17.5 CALL at 17.5 exp. 16-Oct-2010 0 to 7 = +7
ADBE101016P17.5 PUT at 17.5 exp. 16-Oct-2010 21 to 27 = +6
ADBE110416P32 PUT at 32 exp. 16-Apr-2011 258 to 263 = +5
ADBE101120C36 CALL at 36 exp. 20-Nov-2010 386 to 382 = -4
ADBE110416C40 CALL at 40 exp. 16-Apr-2011 166 to 162 = -4
ADBE110416C15 CALL at 15 exp. 16-Apr-2011 1 to 4 = +3
ADBE110122P35 PUT at 35 exp. 22-Jan-2011 2654 to 2651 = -3
ADBE110416C17.5 CALL at 17.5 exp. 16-Apr-2011 0 to 3 = +3
ADBE101120P32 PUT at 32 exp. 20-Nov-2010 87 to 84 = -3
ADBE120121C45 CALL at 45 exp. 21-Jan-2012 467 to 464 = -3
ADBE130119C20 CALL at 20 exp. 19-Jan-2013 0 to 2 = +2
ADBE110416C37 CALL at 37 exp. 16-Apr-2011 200 to 198 = -2
ADBE110122C17.5 CALL at 17.5 exp. 22-Jan-2011 119 to 117 = -2
ADBE110122P40 PUT at 40 exp. 22-Jan-2011 878 to 876 = -2
ADBE110416P29 PUT at 29 exp. 16-Apr-2011 138 to 140 = +2
ADBE101120C35 CALL at 35 exp. 20-Nov-2010 238 to 237 = -1
Be careful out there!
Full disclosure: long ADBE