Analysts flag unusual buying in Adobe upside calls

By Doris Frankel and Jim Finkle

CHICAGO/BOSTON (Reuters) - Investors flocked to upside calls in software maker Adobe Systems Inc (ADBE.O) on Tuesday, betting on a turnaround in the underlying stock on anticipated product news, a positive earnings surprise or a possible sale of the company.

Adobe could not be immediately reached for comment.

Volume in Adobe calls surged as its shares rose 23 cents to $34.90 in late trade after posting a session high of $35.53.

In all, roughly 41,000 calls compared to 2,439 puts changed hands in Adobe near the close, three times its normal volume, according to option analytics firm Trade Alert.

Adobe shares have fallen 19 percent since January as money has shifted out of technology stocks on worries that the economic slowdown will cause businesses to cut spending on computers and software.

A variety of factors could cause investors to rethink the thesis that an economic slowdown means that Adobe is in for a rough ride this year.

Many Wall Street analysts have been painting a pessimistic picture, saying the company is near the end of a surge in sales that came from last year's release of a major upgrade to its family of graphics design software, which is known as CS3 and includes popular titles such as Illustrator and Photoshop.

"Clearly the fast money is all over Adobe right now," said Jon Najarian, co-founder of Web information site optionmonster.com in Chicago. "For two sessions in a row including today, we have seen very strong buying of Adobe out-of-the-money calls."

Option analysts and traders cited different rationale for the buying spree in Adobe calls, which allow investors to buy Adobe shares at a given price and time.

Adobe is not due to report earnings until next month, but Hewlett-Packard Co, the world's biggest PC maker, was scheduled to release results late on Tuesday and news of a good quarter could prompt investors to bet that Adobe will have one, too.

Many of Adobe's programs, including its Photoshop and Illustrator graphics design software, run on personal computers.

"It could be a bullish sympathy play as investors anticipate Hewlett-Packard's earnings release tonight to be favorable," said William Lefkowitz, options strategist at brokerage firm vFinance Investments.

Some option investors may also be betting that the company will reveal new plans for selling software that works on mobile phones at the Game Developers Conference 08, a gathering in San Francisco that opened on Monday and runs through February 22.

Adobe's Mobile & Devices business unit is one of the main corporate sponsors of the industry gathering. On Sunday, it released an upgrade to Director 11, which developers use to write games and other software that runs on mobile devices.

More Adobe news may follow at the conference. said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.