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Option Clips: Facebook Inc (FB), Baidu Inc (ADR), and Juniper Networks

Reviewing notable options activity on Facebook Inc, Baidu Inc (ADR), and Juniper Networks, Inc.

by 4/28/2014 1:50 PM
Stocks quoted in this article:

Two equities generating buzz on StockTwits today are social networking titan Facebook Inc (NASDAQ:FB) and Chinese Internet issue Baidu Inc (ADR) (NASDAQ:BIDU). Meanwhile, tech concern Juniper Networks, Inc. (NYSE:JNPR) is also popular in the options pits. Here's a look at how traders have been aligning their speculative bets today.

  • Facebook Inc (NASDAQ:FB) is extending its post-earnings slump, with the shares down 4.6% at $55.06 -- territory not charted since Jan. 29. Speculators are eager to place short-term bets on the stock, as its 30-day at-the-money (ATM) implied volatility (IV) is 12.4% higher at 48%. Calls are dominating the options pits, with roughly 225,000 contracts exchanged, compared to about 160,000 puts. Bulls appear to be buying to open the May 60 and 65 calls, which have both seen healthy ask-side volume and significant IV increases. By purchasing the calls to open, the traders expect FB to climb back atop the respective strikes by the close on Friday, May 16, when front-month options expire.

  • Baidu Inc (ADR) (NASDAQ:BIDU) is retreating in step with other Chinese Internet stocks, down 8.6% at $148.83. A censor crackdown in China, as well as disappointing earnings results from sector peer Sohu.com Inc (NASDAQ:SOHU), are weighing on the stocks, with BIDU now in danger of ending at its lowest level since April 7. Overall options volume is running at twice the typical intraday rate, and the stock's 30-day ATM IV has charged 9.6% higher to 42.3%. Most active is the weekly 5/2 162.50-strike call, where close to 4,900 contracts have changed hands, primarily at the ask price. Volume has surpassed open interest at the strike, and IV is 12.5 percentage points higher, hinting at newly minted bullish bets. The goal of the buyers is for BIDU to rebound north of $162.50 by Friday's close, when the options expire. However, considering short interest rallied 34.6% during the past two reporting periods, it's possible that today's affinity for out-of-the-money calls is attributable to short sellers hedging their bets against a short-term bounce.

  • Finally, Juniper Networks, Inc. (NYSE:JNPR) is following the tech sector into the red, down 2.3% at $23.92. JNPR options are trading at three times the normal rate, and the security's 30-day ATM IV is 2.4% higher at 27.9%, pointing to a healthy appetite for short-term contracts. Digging deeper, most of the action has transpired at the weekly 5/2 24 strike, where symmetrical blocks of 5,000 contracts traded on both the put and call sides. The puts were apparently sold to open for $0.13 apiece, while the calls were sold to open for $0.66 apiece. In other words, the speculator initiated a short straddle for $0.79 per pair of options, or $395,000 total (net credit x 100 shares x 5,000 contracts). The goal of the strategy is for JNPR to finish the week right at $24, rendering both options worthless at expiration, and allowing the trader to pocket the entire net credit. However, the speculator will avoid a loss as long as JNPR settles the week between $23.21 (strike minus net credit) and $24.79 (strike plus net credit).

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