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Facebook Inc (FB) Option Players Predict a Recovery

Facebook Inc traders are purchasing calls that expire on Friday

by 4/7/2014 11:29 AM
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Option Brief: Facebook Inc (NASDAQ:FB) was among the hardest hit during Friday's tech-sector sell-off, closing at a two-month low. So far today, the social networking stock has explored both sides of breakeven, but was last seen fractionally higher at $56.77. What's more, option buyers continue to wax optimistic on FB, with intraday call volume running at a 42% mark-up to the stock's average pace.

Roughly 143,000 calls have changed hands thus far, compared to around 70,000 FB puts. Aside from a possible bull call spread at the May 60 and 70 strikes, attracting notable attention has been the weekly 4/11 57.50-strike call, where more than 14,300 contracts have crossed on open interest of fewer than 4,100 contracts, pointing to freshly added positions. Plus, a healthy portion of the calls traded on the ask side, and implied volatility (IV) is 12.8 percentage points higher at the strike, hinting at newly bought bullish bets.

By purchasing the calls at a volume-weighted average price (VWAP) of $1.39, the buyers stand to profit if FB is sitting north of $58.89 (strike plus VWAP) at Friday's close, when the options expire. Delta on the calls sits at 0.45, implying a less than 1-in-2 shot of an in-the-money finish. Risk, meanwhile, is capped at the initial premium paid for the calls, should FB remain beneath the strike through the end of the week.

Facebook Inc's (NASDAQ:FB) short-term options are growing more expensive, due to escalating demand. In fact, the stock's 30-day at-the-money IV is up 2% at 70.4% today, and the equity's Schaeffer's Volatility Index (SVI) has jumped from 35% on April 2 to its current perch at 50% (in the 44th percentile of its annual range).


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