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Shutterfly's Post-Earnings Rally Attracts Bullish Speculators

Traders take a shine to SFLY's front-month series of calls

by 2/6/2013 12:35 PM
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Shutterfly, Inc. (NASDAQ:SFLY - 40.08) cruised to a new multi-year high of $40.40 today, courtesy of yesterday's stronger-than-expected fourth-quarter earnings report. The results also sparked a flood of bullish brokerage notes from the likes of Raymond James, Barclays, Baird, Janney Capital, and Cantor Fitzgerald. Not surprisingly, SFLY call players are out in full force, with approximately 11,000 calls crossing the tape so far. This is about 24 times the security's expected intraday call volume, and more than five times the number of puts exchanged.

SFLY's front-month series of options seems to be in the spotlight today, with the February 40 and 42.50 calls seeing nearly 3,100 contracts change hands, collectively. A healthy portion of these calls traded at the ask price, pointing to buyer-driven activity. Since today's volume exceeds current open interest levels at both strikes, it's likely that fresh bullish bets are being initiated here.

Since the 40 strike calls were purchased at a volume-weighted average price (VWAP) of $0.98, traders are expecting SFLY to rise north of $40.98 (strike price plus VWAP) by the close on Friday, Feb. 15, when front-month options expire. In the case of the 42.50 strike calls, the stock must climb atop the breakeven rail of $42.81 (strike price plus the VWAP of $0.31) within the same time frame in order for speculators to secure a profit. The former sports a delta of 54, while the latter's delta resides at 20. In other words, these options have a 54% and 20% chance of finishing in the money at expiration, respectively.

The online photo service is certainly no stranger to near-term call activity. In fact, Schaeffer's put/call open interest ratio (SOIR) for SFLY sits at 0.41, with calls more than doubling puts among options slated to expire within the next three months. This ratio is docked in the 22nd percentile of its annual range, indicating short-term traders have been more call-heavy toward the stock less than one-fourth of the time during the past year.

Thanks to today's 19.3% spike, SFLY now boasts a year-to-date advance of more than 34%. What's more, the security has also bested the broader S&P 500 Index (SPX) by over 19 percentage points during the last three months. Still, should the shares fail to reach the aforementioned breakeven rails, the most these call buyers stand to lose is the initial premium paid.


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