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Option Trader Eyes a Big Facebook Inc (FB) Recovery

A huge block of Facebook Inc calls was bought to open earlier today

by 3/27/2014 11:35 AM
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Facebook Inc (NASDAQ:FB) is seeing intense trading in its options pits this morning, with calls and puts both more than doubling their respective intraday averages. By the numbers, nearly 241,000 calls are on the tape, versus just over 120,000 puts. Not surprisingly, the four most active FB strikes are on the call side of the aisle.

Taking the top position is the social network's April 62.50 call, where nearly 37,000 contracts have changed hands. Open interest at the out-of-the-money strike consists of roughly 16,000 contracts, suggesting new positions are being opened. While the majority have crossed at or below the bid price, Trade-Alert notes that a block of 15,644 contracts was actually bought to open.

Honing in on that transaction, Trade-Alert speculates the call buyer is targeting a short-term recovery for FB shares, which currently sit at $59.78. Since hitting a record high earlier this month, the stock has pulled back to its ascending 100-day moving average, and bounced off of it earlier today. Perhaps banking on continued trendline support, today's trader expects Facebook to muscle back above the $62.50 level by the close on Thursday, April 17, when the front-month contracts expire. Even if those gains don't materialize, the most the speculator risks losing is the initial premium paid, or roughly $2 million (15,644 contracts * 100 shares per contract * $1.28 premium paid per contract).

Taking a step back, today's call buyers are breaking with the recent trend toward long puts. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Facebook Inc's (NASDAQ:FB) 10-day put/call volume ratio of 0.50 ranks in the 92nd percentile of its annual range, meaning traders have scooped up bearish bets relative to bullish at a faster-than-usual pace in recent weeks. From a contrarian perspective, if the shares start moving higher, an exodus of bears could add fuel to the equity's fire.


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