Why Today's FireEye Inc (FEYE) Rally Could Be Short-Lived

FireEye Inc (NASDAQ:FEYE) has moved higher following a data breach, but its gains may be short-lived

Dec 3, 2015 at 11:05 AM
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Cybersecurity stock FireEye Inc (NASDAQ:FEYE) is buzzing today, after toymaker VTech Holdings called upon its subsidiary, Mandiant, in light of a cyber attack that affected over 6 million children. Shares of FEYE popped on the news, but have since pared their gains, last seen 1.2% higher at $22.40, as they try to keep up with a sector peer that continues to outperform

It appears one group of option bulls is expecting FEYE to extend today's gains. The stock's most popular option by far is the weekly 12/4 22.50-strike call, where over 1,000 contracts have traded. Data suggests buy-to-open activity here, meaning speculators are betting on the security to explore upside beyond $22.50 before the options expire by the end of the week. 

Looking back, this bullish activity isn't so unusual. Over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FEYE has accumulated a call/put volume ratio of 10.16. This reading tells us over 10 calls have been bought to open for each put, and it also outranks every similar reading from the past year. In short, call buying has been much more popular than normal

Reaffirming this preference for calls is FEYE's Schaeffer's put/call open interest ratio (SOIR). At 0.77, this ratio reveals that call open interest outweighs put open interest, when looking at options that expire within the next three months. 

Not only have option traders been overly zealous, but there are plenty of bullish holdouts among the brokerage bunch. Currently, 23 analysts cover FEYE, and nine of them say it's a "strong buy," while zero deem it a "sell."

What makes all this optimism interesting is FireEye Inc's (NASDAQ:FEYE) notable underperformance, technically speaking. Since touching an annual high of $55.33 in mid-June, the shares have given back roughly 60%, continuously succumbing to overhead pressure from their 20-day moving average -- which is currently located at $22.79. As a result, FEYE has lagged behind the S&P 500 Index (SPX) by a whopping 46 percentage points in the past three months. If the stock continues to underperform, an exodus of bulls, whether it be option traders or analysts, could spell even more losses for FEYE. 

 

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