VeriSign Put Options Should Be Sold, JPMorgan Says

Investors should sell bearish VeriSign Inc. options because the share price of the biggest operator of computers that direct Internet traffic is supported by its stock buyback program, JPMorgan Chase & Co. said.

Equity derivatives strategists Amyn Bharwani, Marko Kolanovic and Adam Rudd recommended selling VeriSign’s $30 put options expiring in December. The stock rose 2.5 percent to $32.57 at 4 p.m. in New York. Selling a put is a bet that the stock will remain above the strike price, allowing the seller to keep the premium paid.

JPMorgan analyst Sterling Auty rates VeriSign “overweight” and says the risk of a decline in the shares is limited by the company’s share repurchase program, the New York- based strategists wrote in a report yesterday. VeriSign has an authorization to buy back $1.5 billion of its own stock after repurchasing 8.1 million shares for $227 million in the second quarter.

“Share repurchase remains front and center,” Auty wrote in a note to investors on Sept. 28. “We like the strategy as it makes us feel like the downside is somewhat protected by a large buyer (Verisign) while leaving the potential for a lot of upside to our target as things continue to get better from a growth and margin standpoint.”

The company has about $3 billion in cash, according to JPMorgan, after selling a dozen of its “non-core” businesses since November 2007, including its website authentication- services unit to Symantec Corp. for $1.28 billion in cash in May.

VeriSign, based in Mountain View, California, has advanced 34 percent this year, compared with a 0.3 percent gain in the Standard & Poor’s 500 Information Technology Index.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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