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Facebook Inc (FB) Bulls Stay Hopeful for the Short Term

Short-term, out-of-the-money calls active in FB

by 4/15/2013 2:35 PM
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The Facebook Inc (NASDAQ:FB) tide may be turning as far as options players are concerned, as a recent pop higher in the shares has been met with increased bullish speculation. For example, the stock's 10-day call/put volume ratio -- measuring buy-to-open activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- stands at 2.17, its highest point since March 27. During the past two weeks, then, more than two calls have been scooped up for every put.

Today, this trend has continued, as roughly 73,000 calls have changed hands, compared to about 48,000 puts. The most active Facebook Inc strike is the April 27 call, where more than 9,200 contracts have traded. The large majority of these front-month positions traded at the ask price, and implied volatility has ticked up 6.6 percentage points, pointing to buy-to-open activity.

Based upon the volume-weighted average price (VWAP) of $0.37, breakeven at expiration is $27.37 (strike plus VWAP). As the stock is currently trading at $26.63, FB is expected to gain at least 2.8% by Friday's close in order to land these traders in profitable territory. Should FB remain south of the strike price, today's call buyers only stand to lose the premium paid.

Facebook speculators with a slightly longer-term view have zeroed in on the weekly 5/3 28-strike call. Today's volume -- currently amounting to more than 6,300 contracts -- easily tops existing open interest. What's more, more than 80% of the trades have changed hands at the ask price, and implied volatility is almost 5 percentage points higher.

Again, these signs all point to the initiation of new bullish bets, which traded at a VWAP of $0.93. Breakeven at expiration is $28.93, or an 8.6% jump from current levels. This option's delta currently stands at 0.35, meaning the options market gives this call a slightly better than 1-in-3 shot at being in the money once expiration rolls around. It is notable that Facebook is expected to report earnings on May 1, just ahead of expiration for this weekly series.

Facebook Inc (NASDAQ:FB) has gained more than 50% off its all-time low of $17.55, which was reached in early September. This month alone, FB shares have tacked on more than 4% and have muscled back above their 20-day moving average. In the news, the social networking giant has joined forces with the attorneys general of 19 states to educate teens about online privacy.


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