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Facebook Inc (FB) Flooded By Short-Term Options Traders

Short-term option speculators are swarming FB

by 1/15/2013 11:30 AM
Stocks quoted in this article:

Call traders have converged on Facebook Inc (NASDAQ:FB - 31.38) today, with these typically bullish bets trading at more than twice the normal pace. Most notably, speculators are circling FB's soon-to-expire January-dated calls, in order to bet on the social networking concern's end-of-week (and post-event) trajectory.

At last check, FB has seen roughly 140,000 calls cross the tape, more than doubling its average midday volume of around 67,000 calls. For comparison, fewer than 70,000 FB puts have traded thus far.

Digging deeper, option bulls seem to be picking up January 2013 32-strike calls, which have seen more than 10,000 contracts change hands -- mostly at the ask price, suggesting they were bought. Plus, implied volatility was last seen more than 7 percentage points higher, hinting at newly opened positions.

By purchasing the calls to open, the buyers are expecting FB to surmount the $32 level by Friday's closing bell, when front-month options expire. More specifically, the calls traded at a volume-weighted average price (VWAP) of $0.44, indicating a breakeven level of $32.44 (strike plus VWAP) -- in territory not charted since July -- for the buyers. However, even if FB remains south of the strike, the most the buyers can lose is the premium paid at initiation.

As alluded to earlier, today's fresh option bulls are likely gambling on more upside following Facebook's mysterious media event, scheduled for later today. Heading into the event, the stock's front-month options have grown increasingly popular -- and expensive -- as evidenced by FB's ascending Schaeffer's Volatility Index (SVI), which now stands higher than 55% of all other readings of the past year.


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