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VeriSign Put Options Should Be Sold, JPMorgan Says

Oct. 5 (Bloomberg) -- 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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