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Option Bulls Flock to Facebook Inc (FB) Ahead of Earnings

FB fans are purchasing weekly call options as earnings approach

by 4/29/2013 11:26 AM
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The shares of Facebook Inc (NASDAQ:FB) are comfortably higher this morning, and options traders are expecting more upside in the wake of the firm's upcoming turn in the earnings limelight. So far today, the social networking concern has seen roughly 80,000 calls cross the tape -- an 88% mark-up to its average intraday call volume, and twice the number of FB puts exchanged.

Most popular is the weekly 5/3 30-strike call, which has seen more than 8,000 contracts change hands on open interest of fewer than 4,300 contracts, pointing to an influx of fresh initiations. Plus, more than two-thirds of the calls have traded on the ask side, suggesting they were bought.

By purchasing the calls at a volume-weighted average price (VWAP) of $0.27, the buyers expect Facebook Inc to muscle atop the $30.27 level (strike price plus VWAP) by Friday's close, when the options expire. From FB's current share price at $27.17, it would take a rally of greater than 11% in order for the stock to touch breakeven. Should FB remain south of the round-number strike even after the company's turn in the earnings confessional Wednesday night, the most the buyers can lose is the initial premium paid for the calls.

That's not to say Facebook options are cheap, though. Heading into its earnings release, the stock's Schaeffer's Volatility Index (SVI) has been on the rise, reflecting growing demand for short-term contracts. Now, the SVI sits at 52% -- above 43% of all other readings of the past year, suggesting premiums are growing more expensive.

Fundamentally, FB has matched or topped Wall Street's bottom-line earnings estimates in each of the past three quarters. This go-round, analysts, on average, are anticipating a per-share profit of 13 cents for the firm.

In other news, Facebook Inc founder Mark Zuckerberg has joined the list of CEOs earning a $1 salary, my colleague Alex Eppstein reported this morning.


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