Options Trade – Ciena Corporation (NYSE:CIEN) Calls 
Monday, September 01, 2014

**OPTIONS TRADE: Buy the CIEN Jan 2015 20.000 call (CIEN150117C00020000) at or under $2.30, good for the day. Place a protective stop limit at $0.90 and a pre-determined sell at $4.00.

by Ian Harvey

September 01, 2014


Ciena Corporation (NYSE: CIEN), a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic, is due to announce its fiscal third-quarter results before the opening bell on September 4.

Analysts have forecast quarterly earnings of $0.29 per share, up from $0.23 during the same period last year. Revenues are expected to rise 18% from the same period last year, driven by non-telecom sources and data centers. The stock has bounced over the last couple of weeks, but remains down 13.9% on the year, which leaves plenty of room for this options trade to come to fruition.

After two months of selling pressure, CIEN finally bounced in August, and the stock is currently in an upward trend. Ciena has posted back-to-back positive earnings surprises, and if it can continue the trend with its third-quarter numbers, the stock should maintain its current momentum.

Technical Details

CIEN was recently trading at $20.60, down $7.34 from its 12-month high and $2.60 above its 12-month low. Technical indicators for TOL are bearish and the stock is showing signs of a possible trend reversal. The stock has support above $19.15 and recent resistance below $21.00.


Ciena (NASDAQ:CIEN) last posted its quarterly earnings results on Thursday, June 5th. The company reported $0.17 EPS for the quarter, beating the Thomson Reuters consensus estimate of $0.13 by $0.04. The company had revenue of $560.10 million for the quarter, compared to the consensus estimate of $559.18 million.

During the same quarter in the prior year, the company posted $0.02 earnings per share. The company’s quarterly revenue was up 10.3% on a year-over-year basis. Analysts expect that Ciena will post $0.95 EPS for the current fiscal year.

More Demand

There is growing demand for the converged single network. This means strong demand for the Converged Packet Optical segment for Ciena. In the submarine market, Alcatel-Lucent recognizes its value is not being realized by the market present. Similarly, Ciena commands 30 percent of the submarine market, up from zero only just a few years ago.

The trend for 100G in metro deployments is only just beginning, and is another growth area for Ciena.

Seasonal Strength

Ciena said in its conference call it expected a stronger second half of the year. It observed this seasonal strength over the last two to three years. The trend for strong order flow and backlog should continue. Ciena pointed to the Brazil market as a source for international growth. For example, in Q2 Ciena added 15 customers for 100G. It now has 129 in total. The firm also added 5,400 customers in Q2. Investors may reasonably expect continued momentum from its optical transport platform in Q3 and Q4.

Analysts Opinions

CIEN has been the subject of a number of recent research reports. Analysts at RBC Capital cut their price target on shares of Ciena from $24.00 to $21.00 in a research note on Tuesday, 19th August. They now have a “sector perform” rating on the stock.

The company has been the subject of a number of other research reports:-

• Analysts at Zacks downgraded shares of Ciena from an “outperform” rating to a “neutral” rating in a research note on Monday. They now have a $20.00 price target on the stock.

• Also, analysts at Cowen and Company cut their price target on shares of Ciena from $32.00 to $31.00 in a research note on Friday, June 6th.


CIEN shares have rebounded over the last month, but with shares still down 13.9% on the year, the stock should make a strong move higher if results live up to Wall Street's lofty expectations. Analysts expect 46% earnings growth for the company's upcoming fiscal year, and Wall Street has turned more bullish on the stock, with 12 out of 16 analysts who cover the stock rating it a "strong buy".

CIEN’s strong earnings forecast, favorable analyst opinions, and streak of earnings surprises should fuel the stock through the latter part of the year if third-quarter numbers are strong. However, if the results show weakness there will be some sellers coming into the market, but with shares already down close to 14% on the year, it is believed that the downside is limited, barring a huge earnings miss, which is not expected.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the CIEN Jan 2015 20.000 call (CIEN150117C00020000) at or under $2.30, good for the day. Place a protective stop limit at $0.90 and a pre-determined sell at $4.00.

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