SolarWinds Corporation (SWI) is a technology company that produces an Orion software product. Its shares are mostly owned by institutional investors. Anyone reading online news is probably aware of the shocking cyber hack, the full extent of which is unknown, that is attributable to a foreign entity, probably Russian, exploiting an update made by Orion customers several months ago.
About 45% of SWI revenues are attributed to Orion. However, approximately half of Orion clients reportedly installed the patch and therefore incurred vulnerability. A foreboding issue is that, if hackers use what is called a supply chain tactic, they probably prioritize their highest value targets because once detection occurs a lot of the fruits of their toil can suddenly be lost. As headlines describe a startling, international scope or scale of the espionage–as opposed to damage as with NotPetya, which devastated Federal Express among others–there is reason to suspect that a disproportionately high percentage of Orion revenue is attributable to afflicted systems.
The hackers almost certainly install other means to regain entry or access to computers they have compromised. Thus, not only is it unclear who outside of our federal government has been breached, and what has been stolen, but there are going to be extensive and persistent issues on how to regain security. The situation must be a crisis for customers of SolarWinds, never mind the service provider or vendor itself.
It also must be a devastating reputational hit, on the order of BP’s oil spill. The matter should remain politically focal and highly topical in the media. Any reasons for positive treatment are unknown.
There are going to be lost customer relationships and refunds.
It seems the sellers should outnumber the buyers of the stock. Here is my trade: Buy a February $17.50 put option and also a $7.50 put option. The latter “Only” cost $14 before commissions (not to mention bookkeeping fees for tax purposes), the $17.50 cost $215 but an order to sell it for $235 just filled.
My account has a gross profit of just under $19 on the $17.50 put option.
The $7.50 could ultimately be worth $750 if the share price goes to zero by the third week of February 2021 as it gives the owner the right to sell 100 shares of SWI for $7.50 each. That maximum $750 value can be compared to a $20 bid for the security currently.
***The author is short SWI
12/18/20 I have bought an August $10 put option, at a price of $90, and may place an order to sell the February $7.50 at at least $35. If the stock approaches zero the right to sell 100 shares at $10 each to a counterparty should be worth close to $1,000. That would be in addition to the right to sell 100 shares at $7.50 each, which expires in February.
12/21/20 For unknown reasons, the stock is up 15% this morning. Even so, the February $7.50 just sold for $40. The August $10 put option is still in my account.
12/22/20 during premarket hours, the stock appears to be on a continuous bounce. As such, an order is placed to sell the August $10. It filled at $95. 11:30 AM the stock is now hard to borrow, so the short interest has probably gone way up.