This FAANG Stock Could Rally to Record Highs

History is on the side of Facebook options bulls

Nov 30, 2017 at 12:07 PM
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Call options are hot on Facebook Inc (NASDAQ:FB) today, as the FAANG stock bounces back from yesterday's tech sector selloff. At last check, roughly 54,000 calls were on the tape, or 1.4 times what's typically seen at this point in the day, with FB shares up 0.9% to trade at $176.64. And if past is precedent, the equity could take an even bigger bounce into the new year.

Most of today's action so far has centered at the weekly 12/1 177.50-strike call, where 10,061 contracts have traded. It's possible that new positions are being purchased here, as options traders bet on FB shares rallying back above $177.50 by tomorrow's close. The security hasn't ended a week south of this strike price since Oct. 20.

More broadly speaking, FB options buyers at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been quick to buy calls relative to puts in recent weeks. Specifically, the stock's 10-day call/put volume ratio of 2.19 ranks higher than 78% of all comparable readings taken in the past year.

History is certainly on the side of these options bulls. During Facebook's 4% plunge on Wednesday, the stock came within one-standard deviation of its 80-day moving average after trading north of here for most of 2017. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, in the 10 other times this signal has occurred in the last three years, FB shares have gone on to average a 21-day gain of 4.6%, boasting a 90% win rate.

fb stock daily chart nov 30

Based on the equity's current perch, a move of this magnitude would put FB near $185.54 -- well above its record high of $184.24, tagged on Tuesday. Longer term, the FAANG name has surged 53.8% year-to-date.

 

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