Traders have driven the cost of bearish options for NetApp (Nasdaq: NTAP). to the highest level in 15 months after the valuation for the maker of data-storage products climbed to a 10-month high.

Recently considered ta takeover target for larger companies such as IBM (NYSE: IBM) or Cisco (Nasdaq: CSCO), NetApp shares have rallied from three-year lows in November to $35.41 at Tuesday’s close.

Puts hedging against a 10 percent decline in NetApp shares cost 6.09 points more than calls betting on a 10 percent rally, according to one-month options data compiled by Bloomberg. The price relationship known as skew rose to 7.52 on Jan. 31, the highest since November 2011.

The company, scheduled to report third-quarter earnings after the market close today, has climbed 34 percent from a three-year low in November.

NetApp is considered a “strong buy” by two of 29 analysts that track the firm, and another rate it as a “buy,” according to Briefing.com.

In January, Barclays lifted NetApp to “overweight” from “equal weight.”

However, most analysts – 23 – still rate NetApp as a “hold.” Only one rates it as “under perform.”

NetApp operates one of its largest corporate campuses in Research Triangle Park, N.C.

Investors are hedging gains after the stock’s rally sent its price-earnings ratio 44 percent above the multiple for EMC Corp., the world’s biggest maker of storage computers. The stock’s valuation premium to EMC isn’t justified without faster growth from the company, according to Edward Parker, an analyst at Lazard Capital Markets LLC.

“We’re going to need to comfortably see double-digit product growth rates in order to justify the premium multiple to EMC and we’re just not there yet,” Parker said in a Feb. 11 phone interview. He has a neutral rating on the stock. “Competition got a lot more crowded and some of their biggest competitors became competent where they weren’t before.”

Earnings Season

However, NetApp’s profit will probably fall 11 percent this year, the first annual decline since 2009, analyst estimates compiled by Bloomberg show.

The company will release a new version of its data-storage software this year and has made improvements to other storage systems, according to a Lazard note published the same day.

The rally in NetApp shares since November compares with a 2.6 percent increase in EMC (Nyse: EMC). NetApp trades for 28.1 times trailing profit, the highest level since April, and EMC is valued at 19.5 times, data compiled by Bloomberg show. While NetApp’s earnings are projected to decline in 2013, profit at EMC will rise 9 percent, according to analysts’ forecasts compiled by Bloomberg.

Profit at NetApp probably fell 2.8 percent to 56 cents a share during the third quarter, according to the average analyst estimate in a Bloomberg survey. The company in November forecast quarterly income of as much as 58 cents a share.

The options market is implying a one-day move of 11 percent following the report, compared with the average gain or drop of 9.3 percent after the past eight releases.

Implied Volatility

Implied volatility, which traders use to gauge the cost of options, for one-month contracts with an exercise price 10 percent below NetApp has risen 13 percent to 51.1 this year, data compiled by Bloomberg show. During that time, the measure for calls 10 percent above advanced 15 percent to 45.

Lynsey Rose, a spokeswoman for the Sunnyvale, California- based company, declined to comment on the options trading, citing a policy to not speak before the company releases earnings.

The increase in cloud storage may boost revenue at companies such as NetApp, according to a Bloomberg Industries report last week. Global cloud software revenue climbed 28 percent to $29.3 billion in 2012, and market-research firm IDC estimates it will rise 24 percent annually through 2016.

Storage Spending

“NetApp appears to be turning a corner,” Doron Eisenberg, a fund manager at Baltimore-based Brown Advisory, said in a telephone interview on Feb. 11. His firm oversees $32 billion, including NetApp shares. “Storage spending is coming back. NetApp is in the process of introducing new products, which improves its competitive positioning.”

The stock jumped 11 percent on Nov. 15, the most since May 2010, after it posted second-quarter profit that beat analyst estimates. The company also expanded its share repurchase program by $1.5 billion.

The Chicago Board Options Exchange Volatility Index, known as the VIX, slid 2.3 percent to 12.64 yesterday. Its counterpart in Europe, the VStoxx Index, a measure of Euro Stoxx 50 Index option prices, rose 0.9 percent to 18.53 at 9:50 a.m. in Frankfurt today.

Options traders have been increasing bearish bets. The ratio of outstanding puts that give the right to sell NetApp versus calls to buy climbed to 0.81-to-1 on Jan. 30, data compiled by Bloomberg show. That was the highest level since January 2012.

June $32 puts, with an exercise price 9.6 percent below yesterday’s close, were the most owned among all of the stock’s options. They accounted for 25 percent of the total put open interest, the data show.

Short Sellers

Short sellers have also increased wagers the stock will fall. Bets against NetApp is at 1.7 percent of shares outstanding, the highest level since September, according to data compiled by Markit, a London-based research firm.

“Innovation has slowed at NetApp, they lose talent to start ups, and EMC has gotten more competitive,” Jayson Noland, a San Francisco-based analyst at Robert W. Baird, said in a Feb. 11 phone interview. He has a neutral rating on the stock with a price estimate of $31 a share. “It’s not clear to us yet that NetApp is clearly well positioned to ward off change.”