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Traders Target Facebook Inc (FB) for a Mid-July Jump

But the bullish sentiment stands in stark contrast to FB's technical performance

by 7/2/2013 2:08 PM
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It's a sluggish day in Facebook Inc's (NASDAQ:FB) options pits, but there's one strike that's attracting an impressive amount of attention. Specifically, the July 27 call has been targeted to the tune of nearly 12,200 contracts traded. Nearly 90% have gone off at the ask price, suggesting the calls were bought, and implied volatility is ticking higher, indicating the positions are freshly minted.

Going a bit further into the data, we notice that much of the trading transpired just after 10 a.m. ET, when a block of 7,000 contracts was purchased near the ask price of $0.05. In order for the bullish big-volume bettor to come away smiling, he'll need Facebook to advance from its current perch of $24.55 to $27.05 (strike price plus premium paid) by options expiration.

If the necessary move doesn't come to fruition, however, the most the trader can lose is the initial net debit. Based on the Schaeffer's Volatility Index (SVI) of 29%, that's a relatively modest sum -- in fact, it's been lower only 3% of the time in the past year. In other words, FB's front-month options are relatively cheap right now.

Today's block trader isn't the only bull flocking to FB. The stock's current Schaeffer's put/call open interest ratio (SOIR) of 0.55 is the lowest it's been in the past 52 weeks, meaning short-term optimism among option traders has reached its annual peak.

Likewise, an astounding 21 analysts rate Facebook a "strong buy," with another two giving it a "buy" endorsement. By contrast, there are just seven analysts doling out "hold" ratings, without a single "sell" or worse. Moreover, the equity boasts a 12-month price target of $32.80, which is nearly a 34% mark-up to the current per-share price.

That's quite a lot of optimism for a stock that has trailed the broader S&P 500 Index (SPX) by almost 11 percentage points over the past three months, and is down more than 20% year-over-year. Should Facebook Inc (NASDAQ:FB) shares continue to wallow, a series of downgrades and/or downward price-target revisions could pressure the social networking site to even greater depths.

While that wouldn't make today's bulls very happy, it surely would please some of the bears that arrived on the scene yesterday.


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