Call Options Stay Hot on FireEye Inc (FEYE)

Option traders are picking up calls as FireEye Inc (FEYE) slides lower

Feb 2, 2016 at 2:52 PM
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Cybersecurity firm FireEye Inc (NASDAQ:FEYE) has been on a bit of a spending spree recently, buying out sector peer iSight less than two weeks ago, and announcing the purchase of Invotas International Corp. on Monday. Despite scoring minor gains in the immediate aftermath of both M&A announcements, FEYE remains under pressure -- but options traders seem to think the worst is over.

The stock, which hit a record low of $13.28 in January, is down 3.4% at $13.92 today. FEYE has dropped nearly one-third of its value already in 2016, and underperformed the S&P 500 Index (SPX) by a whopping 46 percentage points over the last three months. But that hasn't stopped option traders from picking up bullish bets at an unusually accelerated clip.

In fact, traders in the options pits have been betting on a FEYE rebound for months. The stock's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 6.43 -- meaning nearly seven FEYE calls have been bought to open for each put over the last 10 weeks. This ratio arrives in the 97th percentile of its annual range, not far from a bullish peak.

Short-term options traders have also been call-heavy in the extreme. FEYE's Schaeffer's put/call open interest ratio (SOIR) of 0.28
ranks lower than 100% of all other readings taken in the past year, as speculative players are more call-heavy on FEYE now than at any other time in the last 52 weeks.

Today's action is no exception. FEYE calls have been trading at 1.6 times their typical intraday volume, with at least 14,000 of these contracts changing hands so far. In fact, the five most active strikes for the day are all calls, with the weekly 2/5 15-strike call taking the top spot. More than 4,500 contracts have traded on the option, where buy-to-open action has been spotted -- meaning traders are betting on FEYE regaining the $15 level before the end of the week, when the call expires.

But option buyers are paying up to bet on FEYE today. The stock's 30-day at-the-money implied volatility (IV) of 98.8% is in the 99th percentile of its annual range, and IV on the aforementioned weekly 15-strike call narrowly exceeds that at 100.5%. That means the options market is pricing in some outsized moves from FEYE, which is due to report fourth-quarter earnings next Thursday evening.

Elsewhere, analysts have been relatively unimpressed with the equity lately, with 13 out of 23 brokerage firms rating it a lukewarm "hold." Short interest on FEYE is also elevated, representing about 12% of its total available float -- suggesting some call buyers may actually be shorts looking to hedge their bearish bets. If so, it's certainly not a bad idea to proceed with caution on FireEye Inc (NASDAQ:FEYE), as rumors are swirling -- though not for the first time -- that the company may be the target of an acquisition by network specialist Cisco Systems, Inc. (NASDAQ:CSCO).

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