Despite the holiday-shortened week, earnings continue to roll in. Blue Coat Systems Inc. (BCSI) is slated to step into the earnings confessional later this week and present the Street with its quarterly results. The firm's proxy appliances protect networks from viruses and other security threats and improve network performance. The company's appliances provide Web content filtering, anti-virus protection, spyware prevention, user authentication, and the ability to limit or block peer-to-peer applications such as instant messaging. They can also be configured to provide WAN acceleration, speeding the delivery of business applications with Blue Coat's bandwidth management, protocol optimization, compression, and caching technologies.

The company is slated to enter the earnings spotlight on Nov. 24, with analysts predicting a profit of 26 cents per share. This estimate is down just slightly from the firm's year-ago profit of 27 cents per share. Historically, the company has put in a strong performance, as it has surpassed the consensus estimate in three of the past four quarters.

Technically speaking, the equity has skyrocketed more than 197% since the beginning of 2009. The security has been in a strong uptrend since bouncing off support at the 7 level in December. Furthermore, the stock has enjoyed the support of its 10-week and 20-week moving averages since early January. During this time frame, BCSI has logged only one weekly finish below both of these trendlines.

However, options players have low expectations for BCSI heading into the event. The Schaeffer's put/call open interest ratio rests at 1.95, as put open interest nearly doubles call open interest among options slated to expire in less than three months. What's more, this ratio is at an annual pessimistic peak, indicating that short-term options speculators have not been more skeptically aligned toward the shares at any other time during the past 12 months.

On the other hand, call trading is on the rise on the International Securities Exchange. During the past 10 trading sessions, 6.7 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 70.5% of all those taken during the past year. A shift in sentiment among options players could create a fresh wave of buying pressure for the stock.

Meanwhile, short sellers have leveled some heavy pessimistic bets against the shares. During the past month, the number of BCSI shares sold short has increased by 24% to 2.5 million. This accumulation of pessimistic positions is three times the equity's average daily trading volume and accounts for 6.5% of the company's total float. An unwinding of these bearish bets following another positive earnings report could push the stock significantly higher.

From a contrarian perspective, this combination of lingering pessimism on an outperforming stock has bullish implications. Should the bears begin to jump on the stock's bullish bandwagon, it could bring fresh sideline money into the game, pushing the equity higher.

Copyright Schaeffer's Investment Research http://www.schaeffersresearch.com

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