Why Facebook Inc and Alphabet Inc Option Traders Are Cheering the Tech Swoon

FB and GOOGL are slumping with tech, much to the delight of recent option buyers

by Kirra Fedyszyn

Published on Feb 5, 2016 at 1:29 PM
Updated on Jun 24, 2020 at 10:16 AM

Professional social networking interest LinkedIn Corp (NYSE:LNKD) is plunging post-earnings, and tech in general is swimming in red ink today. Below, we'll take a look at two LNKD peers that are trading lower -- likely to the delight of recent option buyers: Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOGL).

FB is off 5.5% at $104.42 today, and just lost hold of its year-to-date lead. Earlier this week, the stock touched an all-time high of $117.59, as the stock extended a post-earnings run higher.

Today's pullback may be a relief for some recent options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.67 is higher than 98% of all readings take in the last 12 months. Likewise, FB has a Schaeffer's put/call open interest ratio (SOIR) of 0.74 -- in the 98th percentage of its annual range -- indicating that near-term traders are more put-skewed than usual right now. 

However, considering Facebook Inc's (NASDAQ:FB) long-term ascent, it's possible that some of the recent put buying could be attributable to shareholders searching for an options hedge. By purchasing protective puts, traders can lock in gains in the event of a steep retreat.

GOOGL has also been a relatively strong performer lately, hitting its own post-earnings record high at $810.35 on Tuesday. With today's 2.6% drop to $710.03, the stock sits on a nearly 9% year-to date loss, but seems to have found a foothold atop its 32-week moving average. 

Looking to the options pits, traders been backing off their bearish bets somewhat recently, but GOOGL's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.86 still ranks in the 93rd percentile of its annual range. And today, the stock's options are changing hands at twice their typical intraday pace, though calls are outpacing puts. In fact, it looks like one trader might be opening a call ratio spread with March 700 and 800 calls.

Now could be a great time to buy GOOGL options, too. Following the company's earnings report, volatility has dropped considerably. The Schaeffer's Volatility Index (SVI) on the equity has dropped to 31% -- lower than 99% of the past year's readings. That means near-term options are historically attractive on Alphabet Inc (NASDAQ:GOOGL).

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