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Facebook Inc (NASDAQ:FB) attracted a bevy of bullish brokerage attention this morning, and for good reason -- the shares have nearly doubled since July 24, to their current perch at $50.81. That upbeat sentiment is playing out in options land, as well, where FB calls outstrip puts by a count of nearly 3-to-1. Today's two most active strikes are the November 70 and 75 calls, where close to 30,000 and over 28,300 contracts have traded, respectively.
Looking at the data more closely, we discover that most of the volume at those strikes was the product of a massive block trade that occurred just after noon today, when matching 22,920-lots changed hands. The activity at the lower-strike call transpired at the ask price of $0.46 each, while that at the higher strike did so at the bid price of $0.24 each. Implied volatility popped over 2 percentage points on both trades, suggesting the creation of a bull (or long) call spread for $0.22 per pair of options (credit paid less credit received) -- which is also the speculator's maximum potential loss, if FB is trading at or below the 70 strike at November options expiration.
In terms of profit potential, the spread owner will accrue gains with each step north of $70.22 (lower strike plus the net debit) the underlying takes through the closing bell on Nov. 15. Meanwhile, profit is capped at $4.78 per spread (difference in strikes minus the net debit), should the stock reach or exceed $75 by expiration.
Between now and then, Facebook will take a turn in the earnings confessional, after the market closes on Oct. 30. Analysts are calling for a third-quarter profit of 18 cents per share. During the company's last five appearances beneath the earnings spotlight, it has beaten the consensus view three times, matched it once, and fallen short once. Meanwhile, FB's shares have averaged an 8.4% advance one day after the fact.
Finally, Trade-Alert calls attention to the fact that today's long call spread actually added to a similar spread constructed last Wednesday -- which consisted of matching 25,000-contract blocks -- for a net debit of $0.20 per pair of options. This activity may be fueled by potential discussions about Facebook Inc (NASDAQ:FB) joining the S&P 500 Index (SPX).
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