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Most Active Options Update: Facebook Inc (FB)

Facebook Inc call players eye an extended run higher

by 6/23/2014 12:50 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest among short-term traders this afternoon is Facebook Inc (NASDAQ:FB). Falling off the list since last time were General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Seadrill Ltd (NYSE:SDRL).

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Facebook Inc (NASDAQ:FB) option traders have shown a preference for calls over puts of late, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, over the past 10 sessions, more than three calls have been bought to open for every put on FB. What's more, the resultant call/put volume ratio of 3.19 ranks in the 84th percentile of its annual range, meaning long calls have been initiated, relative to puts, with more rapidity just 16% of the time within the past year.

This call-skewed bias is being witnessed in today's session, with calls outstripping puts by a nearly 2-to-1 margin. Short-term options are in high demand, as evidenced by the equity's 30-day at-the-money (ATM) implied volatility (IV), which has surged 17.4% to 38.3% -- its loftiest perch since early May. In fact, the most active FB option this afternoon is the July 65 call, where 14,312 contracts have changed hands.

Diving deeper reveals that the majority of these calls have traded at the ask price -- pointing to buyer-driven activity. Meanwhile, IV has edged higher, hinting at the initiation of new positions. With FB up 1.4% to $65.43 this afternoon, the July 65 calls are in the money. However, in order for call buyers to profit, FB must be sitting north of breakeven at $67.09 (strike plus the volume-weighted average price of $2.09) at the close on Friday, July 18, which is when front-month options expire. Gains are theoretically unlimited with each additional step above here the stock settles, while losses are capped at the initial premium paid, should FB be below the strike at expiration.

Meanwhile, as my colleague Milissa Hudepohl noted earlier, now appears to be a prime time to purchase near-term FB options, with the stock's Schaeffer's Volatility Scorecard (SVS) docked at an annual high. Simply stated, Facebook Inc (NASDAQ:FB) tends to make outsized moves, relative to what the options market has priced in.


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