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Option traders are placing their bets ahead of Thursday's mystery event from Facebook Inc (NASDAQ:FB). Following recent trends, calls are the options of choice so far today, with roughly 73,000 contracts exchanged -- compared to just 26,000 FB puts traded. However, it appears speculators are employing calls to place both bullish and neutral-to-bearish bets on the social networking stock.
On the bulls' side, investors have honed in on the June 25.50 call, which has seen more than 4,600 contracts change hands on open interest of just 2,403 contracts, pointing to fresh initiations. Plus, the majority of the calls crossed on the ask side, implying they were likely purchased.
By buying the calls at a volume-weighted average price (VWAP) of $0.10, the buyers will begin to profit if Facebook Inc (NASDAQ:FB) topples $25.60 (strike price plus VWAP) by the end of the week. In other words, the buyers are looking for FB to jump 4.5% from its current perch at $24.50 in the wake of Thursday's "big idea" revelation. Risk, meanwhile, is capped at the initial premium paid for the calls, should FB remain beneath the strike through Friday's close, when June-dated options expire.
Elsewhere, other traders are utilizing options to bet on limited intermediate-term upside for FB, which has shed 8% so far this year. More specifically, more than 7,900 September 29 calls have traded at a VWAP of $0.48. Most of the calls changed hands on the bid side, and volume is outstripping open interest at the out-of-the-money strike, pointing to sell-to-open activity.
By writing the calls to open, the investors expect FB to stay beneath the $29 level through the next several months. In this best-case scenario, the calls will remain out of the money, and the sellers can pocket the initial premium received. However, it's possible that the sellers are also FB shareholders. In this instance, they're writing covered calls to supplement income on a stagnating stock position, but will miss out on additional upside if FB conquers $29 within the options' lifetime.
As alluded to earlier, Facebook hasn't done much to impress in 2013, with the majority of rally attempts thwarted by its 10-week and 20-week moving averages. Despite underperforming the broader S&P 500 Index (SPX) by 12 percentage points during the past two months, FB remains surrounded by optimists. The equity's Schaeffer's put/call open interest ratio (SOIR) sits at a 12-month low of 0.58, meaning near-term options traders haven't been more call-heavy during the past year.
In the same vein, 20 analysts deem FB worthy of a "strong buy," while another two have doled out "buy" ratings. Meanwhile, just nine brokerage firms consider FB a "hold," and not one has offered up a "sell" or worse suggestion.
Should FB continue to struggle on the charts, or should Thursday's big reveal fall short of expectations, a mass exodus of bulls could exacerbate selling pressure on the shares.