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Most Active Options Update: Facebook Inc (FB)

FB option traders bet on a near-term move into uncharted waters

by 10/15/2013 1:37 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. Three names of notable interest this afternoon are Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG), and Nokia Corporation (ADR) (NYSE:NOK).

Google Inc's October 950 calls are seeing buy-to-open activity, ahead of the company's Thursday evening turn in the earnings confessional. Meanwhile, plans are reportedly in motion to make Google's smart watch a reality. Elsewhere, Nokia Corporation raced to a fresh 52-week peak of $6.96 earlier, prompting bullish speculators to target the equity's October 7 call. Finally, here's a closer look at where Facebook Inc option players are pinning their end-of-the-week hopes.

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Facebook Inc has been on a technical tear lately, with the shares up roughly 92% over the past three months. What's more, the security has put in a solid performance against the S&P 500 Index (SPX) during this same time frame, and has bested the broad-market barometer by north of 88 percentage points. Today's price action is no different, with the stock up about 1% on the heels of an early morning price-target hike. Not surprisingly, calls are outpacing puts in FB's options pits by a margin of roughly 3-to-1.

Two of the more active strikes on the day are the October 51 and 52 calls, as traders bet on additional end-of-the-week gains for the outperformer. A collective 28,655 contracts have changed hands at these out-of-the-money (OTM) strikes thus far, the majority of which have done so at the ask price. Implied volatility is up more than 2 percentage points at both calls, and volume exceeds current levels of open interest, pointing to buy-to-open activity.

The closer-to-the-money October 51 calls are being purchased for a volume-weighted average price (VWAP) of $0.71, meaning traders will begin to profit with each step above $51.71 (strike plus the VWAP) FB takes through Friday's close. This breakeven mark not only represents expected upside of 3.4% to the stock's current perch at $50.01, but also uncharted territory for FB. Meanwhile, the VWAP for the further OTM October 52 calls is $0.36, making breakeven $52.36. Risk for both parties is limited to the initial cash outlay.

Technical milestones are not out of the norm for Facebook Inc (NASDAQ:FB). In fact, the stock hit its most recent all-time high of $51.60 on Sept. 30. What's interesting is that the security rose to this record peak amid a glut of selling pressure. Specifically, short interest on the equity jumped 70.2% during the last two reporting periods. This equates to 40.01 million shorted FB shares -- or the loftiest level of bearish bets since last December. Not only does this speak volumes to the stock's underlying strength (and may explain some of the OTM call speculation as short sellers looking for a near-term hedge), but it also signals an ample amount of sideline cash available to help fuel FB's fire.


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