Stocks quoted in this article:
Facebook Inc (NASDAQ:FB) shares have pulled back more than 3% today to trade at $39.95, after finishing just south of an annual high yesterday. Nevertheless, the options activity surrounding the stock -- 12% above its typical intraday volume -- indicates that speculators are betting on a sharp move higher over the next couple of months.
In particular, traders are targeting the October 45 call, which is the session's most actively traded strike. Nearly 30,700 contracts have traded at the strike, which is more than twice as popular as the runner-up. The majority of the calls have changed hands at the ask price, implied volatility is up, and open interest consists of fewer than 8,300 contracts -- collectively indicating the contracts were bought to open at a volume-weighted average price (VWAP) of $1.03. Data from the International Securities Exchange (ISE) confirms the same.
For the traders to profit, they need the shares of FB to jump 15.2% to the breakeven point of $46.03, or the sum of the strike price and the VWAP, by back-month options expiration. This would represent a new all-time high for the shares. If the big move doesn't materialize -- which is likely, given the option's delta of just 0.25 -- the most the investors have on the line is the premium paid.
Elsewhere, Facebook Inc's (NASDAQ:FB) 30-day, at-the-money implied volatility (IV) continues to surge. Today, the stock's IV is up 2.3 percentage points, or 6.5%, at 38.1%. As noted, FB is heading lower today amid broad-market weakness and reports that Chief Operating Officer Sheryl Sandberg unloaded 176,452 shares last Thursday, Aug. 22.