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Facebook Inc (FB) Option Bulls Hunt for a Bargain

Facebook Inc speculators bought to open February 65 calls yesterday

by 2/5/2014 10:44 AM
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Option Brief: Facebook Inc (NASDAQ:FB) celebrated its 10th birthday in style by posting a 2.1% advance on Tuesday. Option traders responded in kind, and scooped up 196,000 calls, compared to 80,000 puts. What's more, a number of speculators bet on the stock to hit a new record peak over the next two-plus weeks.

The most active strike in FB's options pits on Tuesday was the February 65 call. Roughly 37,900 positions changed hands here -- mostly at the ask price. Additionally, implied volatility (IV) ticked higher, and the strike saw the largest increase in overnight open interest of all FB's options. In other words, it appears a new batch of bullish bets was initiated. Should the stock fail to move north of $65 by the close on Friday, Feb. 21 -- which is when front-month options expire -- the most Tuesday's call buyers stand to lose is the initial premium paid.

These speculators can rest easy, too, knowing they picked up these bets at a bargain. Since reporting earnings last week, Facebook Inc's (NASDAQ:FB) Schaeffer's Volatility Index (SVI) has dropped sharply -- falling to 39% from its Jan. 29 perch of 65%. The current reading is ranked in the 26th percentile of its annual range, suggesting premium on FB's front-month options is relatively inexpensive at the moment. Echoing this -- IV at the aforementioned call is deflated relative to the stock's 20-day historical volatility (40.9% vs. 60.3%). At last check, FB was trading near $61.75.


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