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Facebook Inc (FB) Option Bulls Strike While the Iron is Hot

Facebook Inc traders are once again swarming the June 62.50 call

by 6/3/2014 2:40 PM
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Option Brief: Facebook Inc (NASDAQ:FB) has spent time on both sides of breakeven today, and was last seen flat at $63.08. As investors digest the social networking site's latest acquisition, option players are rolling the dice on short-term upside for the shares, which have added more than 160% during the past year.

Specifically, traders are once again honed in on the June 62.50 call, where more than 8,100 contracts have changed hands. A healthy portion of the calls crossed on the ask side, and implied volatility at the strike is 1.0 percentage point higher -- collectively pointing to buy-to-open action.

The calls crossed at a volume-weighted average price (VWAP) of $2.05, meaning the buyers will reap a reward if FB settles atop $64.55 (strike plus VWAP) at the close on Friday, June 20, when front-month options expire. In fact, the buyers' profit will increase the higher FB moves north of breakeven, with theoretically unlimited gains to the upside.

Delta on the call rests at 0.56, implying a greater than 1-in-2 shot of expiring in the money. Should the equity retreat and finish beneath the strike at expiration, risk is limited to the initial premium paid for the calls.

However, the buyers can rest assured knowing they scooped up the contracts at a relative discount. The stock's Schaeffer's Volatility Index (SVI) of 32% sits 14 percentage points from an annual low, suggesting Facebook Inc's (NASDAQ:FB) short-term options are attractively priced, from a volatility standpoint. In addition, the security's Schaeffer's Volatility Scorecard (SVS) stands at 100, indicating FB has tended to make outsized moves on the charts, relative to what the options market has priced in.

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