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Facebook Inc (FB) Option Buyers Expect a Strong Friday Finish

Weekly calls are most popular in Facebook Inc's options pits today

by 3/4/2014 11:22 AM
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Option Brief: Facebook Inc (NASDAQ:FB) is up 1.3% at $68.28, as traders digest rumors of a $60 million purchase of drone maker Titan Aerospace. Since touching a record high of $71.44 early last week, the shares have taken a breather, but option speculators are rolling the dice on more short-term upside this week.

So far today, the social networking concern has seen roughly 67,000 calls change hands, nearly doubling the number of puts exchanged. Most active are the weekly 3/7 68- and 70-strike calls, where about 4,100 and 5,700 contracts have traded, respectively. Most of the calls crossed on the ask side, and implied volatility is trending higher at both strikes, hinting at buy-to-open activity.

The 68-strike calls traded at a volume-weighted average price (VWAP) of $1.20, meaning the buyers will begin to profit if FB topples $69.20 (strike plus VWAP) by Friday's close, when the options expire. Meanwhile, the VWAP of the 70-strike calls is $0.48, resulting in a breakeven of $70.48 for the buyers. Delta on the 68-strike calls has jumped from 0.43 to 0.60, implying a 3-in-5 chance of finishing in the money at expiration. Delta on the higher-strike calls, meanwhile, rests at 0.32, up from 0.22 at yesterday's close.

Should Facebook Inc (NASDAQ:FB) shares take a turn for the worse and finish beneath the strikes come Friday's close, the most the buyers are risking is the initial premium paid for the calls. However, the security's Schaeffer's Volatility Index (SVI) of 39% stands higher than just 26% of all other readings of the past year, suggesting now is an opportune time to buy short-term premium on FB, relatively speaking.


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