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Eleventh-Hour Bulls See New Highs for Facebook Inc (FB)

FB fans are picking up call options with a short shelf-life

by 8/8/2013 2:01 PM
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Facebook Inc (NASDAQ:FB) is down 0.5% at $38.69, yet continues to attract option bulls. So far today, the social networking titan has seen roughly 101,000 calls change hands -- almost twice the number of FB puts exchanged.

Most active is the weekly 8/9 39-strike call, where close to 10,300 contracts have traded at a volume-weighted average price (VWAP) of $0.31. Most of the calls crossed on the ask side, and implied volatility was last seen 5.2 percentage points higher, hinting at freshly bought bullish bets.

It's worth noting, however, that 30-day, at-the-money implied volatility is down 1.4 percentage points to 33.8% today. Meanwhile, the stock's Schaeffer's Volatility Index (SVI) of 35% sits in the 20th percentile of its annual range, suggesting FB's short-term option premiums are relatively inexpensive right now.

By purchasing the 39-strike calls to open, the buyers expect FB to muscle atop $39.31 (strike price plus VWAP) by tomorrow's closing bell, when the weekly options expire. This breakeven is a penny shy of the stock's annual high, tagged on Aug. 5. However, should FB remain south of the strike, the most the buyers are risking is the initial premium paid for the calls.

As alluded to earlier, today's appetite for bullish bets is just more of the same for FB. The security's 10-day call/put volume ratio of 2.60 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates that traders have bought to open more than two FB calls for every put during the past two weeks. Plus, this ratio stands higher than 74% of all other readings of the past year, suggesting speculators are purchasing calls at a faster-than-usual clip.

As a result, the equity's Schaeffer's put/call open interest ratio (SOIR) sits at 0.52, implying that near-term calls practically double their put rivals. This ratio is just 5 percentage points from a 12-month nadir, indicating that short-term speculators have rarely been more call-heavy during the past year.

In fact, as of yesterday, Facebook Inc (NASDAQ:FB) had 2.05 million calls outstanding, according to Dow Jones Newswires. That's 46% higher than last month's peak of 1.4 million calls, and nearly 18% above the previous all-time acme of 1.74 million calls, reached on Feb. 1.


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