Citrix stock performance: What's going on?

Well here's my take. The common stock that is traded on the NASDAQ has been stuck below $30 for a while now and is having a tough time breaking out of this mini-slump that it's in.

Well here's my take.  The common stock that is traded on the NASDAQ has been stuck below $30 for a while now and is having a tough time breaking out of this mini-slump that it's in.  Even all the talk of MSFT being interested, there hasn't been any significant movement in the common shares of the company.  Why?  Because the guys that "make a market" in this issue don't believe there is anything beyond just plain rumors.  Now the article that appeared in the WSJ yesterday (this was actually an online subscriber only article, so I can't put it here)actually stated that the options on CTXS were up significantly.  This is true.  There were 14,000 October 30 calls traded the day before.  This is interesting for sure, but there's more.  That day the stock was up over a dollar and a quarter.  No big deal the tech sector in general was up.  What makes this more interesting of a story is the fact that options on the stock is how some serious money is made.

So what is an option?

I'm sure since most of us in IT have never played the market seriously before (it's just an assumption) let me set the stage here.  An option is a financial instrument that gives the holder the right to buy, not the obligation to buy, some underlying security, in this case CTXS common stock.  So if you buy a call option on CTXS you have the right to buy a specified quantity of that stock at a set price (what is called the strike price) at a time on or before the expiration of that option.  Conversely, a put option gives you the right to sell.  Make sense?

What does this mean for CTXS?

First it means that there are some folks out there who are betting on the stock price to be above $30 a share by expiration (third week in October actually).  It's hard to say what kind of calls these are but my bet here is that these are what we call "Long calls".  Meaning that speculators, traders, experienced investors, etc are buying options for the leverage factor.  They can control more shares with less money.  That's the key right? Leverage.

Does this mean that the company (CTXS, VMW, whomever) is "in play", meaning that they are a target of another company?  Not really.   The third quarter just ended and I'm sure it's speculation (again buy on the rumor and sell on the news) that CTXS will have a good Q3.  On the other hand it could be that CTXS is looking to make an acquisition that would alter the competitive landscape of the industry and that might be looked upon favorably by others.  Lots of what if's here aren't there?

Another interesting point here is that the interest in the Oct 35 calls is much larger than the 30s, so this leaves me to believe that there are some folks out there that are hoping for a big move in the stock in the next few weeks.  

So let's take a look at the "dark side".  The puts.  Remember that a put is the right to sell the stock at a fixed price.  So if the stock price is below the strike price the person profits.  If the stock price is above the strike price at expiration, the option simply expires worthless and the person is only out the money (the premium) paid.

There are some interesting aspects here as well as the interest in the Oct 25s is inching up and the Oct 30s are really moving in price.  Interesting just to see the opposite side of the coin here and how many people are speculating that the stock will be below $25 by the end of October.

Another bullish indicator for a higher stock price is the "short % of float".  It's currently at over 5% of 180 million shares.  What does that mean?  If the stock moves significantly higher those people will have to cover those shorts (meaning buying the stock outright) and hence moving the stock price higher.

So what's my point here?

There are no official papers filed with the SEC (form 13G) that would indicate someone is acquiring a more than 5% stake in the company and not one of the financial news services has picked that up.  Institutions (mutual funds, pension funds, etc) own 90% of the shares outstanding meaning that if someone wanted the company that bad they would have to deal with those folks and that would definitely make the news.  There has been no real significant move in the price of the common stock or any large spikes in the daily volume that would indicate any kind of move is being made to acquire the company.

Would it be interesting if Brian's post came true?  You bet, I'd buy into that company.  Will it come true?  Good question.  In today's tough economic climate, not likely.  Not that it would be an all cash deal (there aren't that many of those done anymore), but it would take a lot more to get it done today.

The end game?  CTXS is not in play in my opinion.  It's just the standard "run of the mill" speculation that happens with hot sector stocks when a quarter ends, nothing more.

Here's my disclaimer again:  I am a seasoned professional (albeit retired from that industry).  I do own long positions in the common stock of CTXS and VMW.  I own options on both sides of the coin as part of a larger strategy to hedge bets and make money with my investments.  I am not recommending nor am I suggesting you buy these companies.  I'm just giving you my two cents on some of the financial news items that have been cropping up in the last couple of weeks.




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