Websense (NASDAQ:WBSN) provides employee Internet management software products that enable organizations to analyze, report, and manage their employees computing resources, including Internet access, instant messaging, peer-to-peer file sharing, network bandwidth, and desktop applications. Its primary product includes Websense Enterprise software application, a central policy engine and management console, which enables organizations to manage their employees' Internet access and use of software applications, as well as serves as a platform for related Websense add-on modules. The company's Security Suite enables organizations to block access to sites associated with spyware, phishing, hacking tools, and other malware, as well as to block malicious attachments delivered through instant messages.
Shares of WBSN have slumped in recent sessions amid heavy trading volume and although there is no "public" news to explain the activity, some investors have commented on rumors of a possible acquisition while others have expressed concerns with the upcoming quarterly earnings report. Regardless of the reason for the sell-off, the stock seems unlikely to reverse course in the coming weeks and readers who share that opinion should consider this position. Target a credit of $0.35 per contract initially, as any near-term "bounce" may improve the potential profit of the spread. In addition, some traders may consider a higher number of contracts to offset commission costs.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bearish/credit spread):
BUY CALL JUL-55.00 DQH-GK OI=938 ASK=$0.25
SELL CALL JUL-50.00 DQH-GJ OI=742 BID=$0.50
INITIAL "NET-CREDIT" TARGET = $0.35-$0.40
POTENTIAL PROFIT (X 5 contracts @ $0.35) = $175
MARGIN REQUIREMENT (X 5 contracts) = $2325
RETURN ON INVESTMENT (max) = 7.5%
COST BASIS = $50.35
INITIAL EXIT STRATEGY:
Once the spread is open, traders should place a (contingent) order to close the short ($50.00) call options if the stock price moves above $50.50 on an intraday basis. A "net-debit" order of $0.85-$0.90 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.