Super Micro Put Options Volume Rise Amid Continued Stock Sell-Off

$SUPER MICRO COMPUTER INC(SMCI)$   is seeing increasing demand for put options that could protect the holders against continued slump in the stock price.

Shares of the maker of high-powered servers tumbled more than 7% Monday morning, after the announcement late Friday that SMCI will be removed from the $NASDAQ 100(NDX)$   before the market opens on Dec. 23. Deletions from the index typically result from money outflows because exchange traded funds (ETFs) that track the benchmark are likely sell their holdings as they adjust the portfolio accordingly.

That decline takes SMCI's slump over the past six months to more than 60%. The company has failed to file its annual report for the fiscal year that ended June 30 and had to find a new auditor after Ernst & Young resigned in October over disagreement on the financial statements prepared by management.

Ernst & Young also refused to be associated with those financial statements and raised concerns "whether the company demonstrates a commitment to integrity and ethical values." While SMCI appointed BDO USA as its new independent auditor last month, and was granted an extension to file its financial report until Feb. 25, these weren't enough to assuage investor concerns and stem the share slump.

Put optionsthat give the holders the right to sell SMCI shares at 20 each by the end of this week attracted the heaviest trading so far, with 20,820 contracts changing hands as of 12:16 p.m. in New York. The price of those put options surged more than 66% as the stock sell-off increased the odds that the contract could be in-the-money before they expire in four days. Volume jumped 87-fold from just 238 contracts in the previous session.  

More than 447,750 options tied to the server maker were traded so far, making SMCI the sixth most active stock option, behind $NVIDIA Corp(NVDA)$  , $Tesla Motors(TSLA)$  , $Broadcom(AVGO)$  ,  $Palantir (PLTR.US)$, and $Alphabet-A (GOOGL.US)$.

The rebalancing of Nasdaq 100 is expected to spur $22 billion of selling by ETFs that track the index, Bloomberg Intelligence analyst Eric Balchunas said in a note last week, before the deletions were announced. SMCI's removal from the index could prompt ETFs to sell $657 million in shares of the server maker, according to Balchunas.

The stock's decline to $33.88 sent the share price below the middle line of the Bollinger band, a sign to some who study charts that the trend is bearish and the price could be headed for the lower line.

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