Stocks quoted in this article:
As Facebook Inc (NASDAQ:FB) was stretching to touch a new annual high of $44.61 on Friday, options speculators were placing their bets on both sides of the tape. North of 600,000 call contracts changed hands -- more than doubling the typical daily call volume -- along with almost 250,000 puts.
One of the most active strikes on Friday saw the greatest increase in open interest over the weekend -- the September 46 call. Accounting for the bulk of the volume trading here was a single block of 21,000 contracts that went off below the bid price at $0.60, suggesting sell orders. Implied volatility ticked up 1.1 percentage points, pointing to rising demand, and data from the International Securities Exchange (ISE) confirms sell-to-open activity at this front-month strike. It also appears that a portion of these calls were rolled higher from the September 45 call strike, which saw open interest drop over the weekend.
These short calls could be part of a covered call strategy, implemented by Facebook Inc (NASDAQ:FB) shareholders who are looking to increase their premium by betting on short-term resistance. Looking out two weeks to September options expiration, the calls will expire worthless if FB is trading below $46. At this point, the call sellers retain the entire premium collected as profit.
If FB instead rallies north of the strike, the call sellers will likely be required to deliver FB shares (to those traders who bought the calls) for a price of $46 per share, no matter how high the stock might be trading. Delta on the call is currently 28%, suggesting the option has a more than 1-in-4 chance of being in the money by the closing bell on Sept. 20.
Facebook Inc (NASDAQ:FB) has rallied 65% in 2013 and is up 131% on a year-over-year basis. The highest the stock has ever reached, however, is $45 (hit on its very first day of trading). Out of the gate today, the stock notched a new annual peak of $44.79, and is currently trading 1% higher at $44.38.
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