Options market activity suggests bullish sentiment among investors after the stock has been hit recently, in tandem with peers in the tech industry.

The options market is positioning for a smaller swing than normal when compared to past moves. F5 options imply a share price move of about 9 to 9.5 percent based on the July options expiring this Friday.

For many stocks, that would be quite a jump - or fall. For F5, it's a little quieter than usual.

"The expectations in the options market is that options are underpricing an earnings move compared to historical data," said Steve Place, a founder of options analytics firm investingwithoptions.com in Mobile, Alabama.

Shares of the network gear maker have tended to rise or fall by an average of 12.05 percent over the past eight quarters, according to Birinyi Associates. It has beaten earnings forecasts in 13 of the last 14 reports, they said.

There has been a lot of call buying heading into earnings. During the 10-day period starting at July 3, option players on three U.S. exchanges have purchased nearly three times as many calls than puts as new positions, said Joe Bell, senior equity analyst at Schaeffer's Investment Research.

"This ratio was higher than 98 percent of the readings taken during the past year, indicating quite a bit of optimism from option speculators ahead of earnings, Bell said.

But the action in F5 call options, contracts that grant investors the right to buy shares at a fixed price by a certain date, may not only suggest optimism. The calls could also be used as insurance by investors with short positions.

Schaeffer's put-to-call open interest ratio for F5 Networks for options set to expire in the front three months is lower than 100 percent of the readings taken during the past 12 months. This ratio of 0.67 indicates calls outnumber puts, suggesting that option traders are positioned bullishly for the three nearest option expiration months, Bell said.

HIGH HOPES

Analysts expect F5 to beat or post an in-line third-quarter but expect a muted forecast following a rash of outlook cuts from peers in the industry like Adtran (ADTN.O) and Acme Packet (APKT.O), who cut estimates as telecom providers held back spending.

Network gear makers have been facing slowing demand for their products as telecom carriers reduce spending amid a sluggish U.S. economy and weakness in Europe.

F5 is not a highly shorted stock and its short interest stands at 4.7 percent of its outstanding shares traded. But that figure has increased 45 percent during the past month, according to Schaeffer's Investment Research data.

The stock is down 29 percent from its 52-week high on April 3. It reported earnings on April 18 above market expectations.

Analysts on average expect the company to post adjusted third-quarter earnings of $1.14 per share on revenue of $352.9 mln, according to Thomson Reuters I/B/E/S.

Overall option volume on F5 was 3.1 times the average daily levels with 21,000 calls and 11,000 puts traded by early Wednesday afternoon, according to options analytics firm Trade Alert. The most active options were the July $100 strike call and the July $90 strike put. Front-month July options expire on Friday after the close.

According to Thomson Reuters StarMine, the stock's intrinsic value is about $80.79 a share, making its current $91.36 price somewhat overvalued. StarMine calculates a stock's intrinsic value - what it should be worth based on expected growth rates over the next decade - by using analyst estimates and its own models of projected growth.

"While FFIV shares are down 14 percent year to date, and have traded down 11 percent in the past month, we still recommend that investors hedge earnings risk with puts," wrote derivative strategists at Goldman Sachs Group in a report prior to Wednesday's open.

F5 shares rose 7.5 percent to $98.61 a share on Wednesday.

Goldman Sachs derivative strategists advised clients to buy F5 July $90 puts to hedge downside risk. Put buyers risk the premium paid if shares close above the strike at expiration this Friday. Goldman tech analysts expect F5 to report an in-line quarter but sees risks to next quarter's guidance.

(Additional reporting by Siddharth Cavale in Bangalore)

(Reporting By Doris Frankel; Editing by Phil Berlowitz)

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