FireEye, Inc. (FEYE) Option Traders Predict Post-Earnings Highs

FireEye Inc (FEYE) traders have been buying to open out-of-the-money calls ahead of earnings

Apr 29, 2015 at 12:02 PM
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FireEye Inc (NASDAQ:FEYE) will step into the earnings limelight after the close tomorrow. The stock has made some big-league moves in the session after earnings, averaging a swing of 10.9% over the past six quarters. The equity's near-term straddle, meanwhile, is pricing in a move of roughly 9% in either direction.

During the past two weeks, FEYE traders have been accumulating long calls at a slightly faster-than-usual clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 4.23 stands higher than 58% of all other readings from the past year.

In the front-month May series, the out-of-the-money 50-strike call has garnered the most attention. Open interest at this round-number strike swelled by close to 1,200 contracts during the past 10 sessions. In order for the calls to move into the money, FEYE would need to conquer $50 -- territory not charted in over a year -- by the close on Friday, May 15, when the options expire.

In today's session, calls have more than doubled puts, with possible buy-to-open action spotted at the January 2016 60-strike call. By purchasing the contracts to open, the buyers expect FEYE to surge atop $60 -- and to new annual highs -- by the close on Friday, Jan. 15, 2016, when the LEAPS cease trading.  

After its last trip to the earnings confessional in February, FEYE enjoyed a single-session gain of 11%. Since then, the security has been bouncing along support in the $38 area -- home to that post-earnings bull gap -- and another earnings win could send the shares atop recent congestion in the $46 neighborhood.

A positive reaction could also spook the FireEye Inc (NASDAQ:FEYE) shorts. Despite gaining more than 35% in 2015 to flirt with $42.72, short interest accounts for 11.8% of the stock's available float -- four days' of pent-up buying demand, at the equity's average pace of trading. In addition, a round of upbeat analyst attention could ensue; 10 out of 21 analysts maintain "hold" or worse opinions, and the consensus 12-month price target of $43.90 is within a stone's throw of the stock's current perch.

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