Facebook Inc (FB) Headlines Bring Out Bullish Options Traders

Facebook Inc (FB) is being targeted by bullish options traders amid a number of Facebook Live headlines

by Alex Eppstein

Published on Apr 6, 2016 at 1:08 PM
Updated on Jun 24, 2020 at 10:16 AM

Facebook Inc (NASDAQ:FB) is rallying this afternoon amid a slew of headlines. According to Re/code, the social network has been paying media firms to publish content on its new Facebook Live livestreaming service, while also adding new interactive features to the service -- such as live reactions, filters, and replay comments. In addition, FB has entered into a renewable energy supply agreement in Ireland. Collectively, the news has the stock 1% higher at $113.30, while its call options are crossing at double the rate of puts -- thanks, in part, to the work of one ambitious bull.

According to Trade-Alert, International Securities Exchange (ISE) data indicates one short-term options trader initiated a 1X2 call ratio spread at the April 114 and 117 strikes. Specifically, the speculator bought to open 5,000 contracts at the lower strike and sold to open 10,000 contracts at the higher strike, anticipating FB will reach $117 -- just below its all-time high of $117.59 -- by front-month expiration at next Friday's closing bell. By selling to open twice as many calls as she bought, the trader lowered her cost of entry -- but also exposed herself to theoretically unlimited risk, in the event of an extended surge past the upper strike.

Short-term calls have been the options of choice for FB options traders for a while. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 0.59, with calls having a healthy advantage over puts among options with a shelf-life of three months or less. More significantly, that reading ranks in the bottom quartile of its annual range, indicating a historically elevated preference for short-term calls over puts.

Meanwhile, the brokerage bunch is stacked in FB's bullish corner. An astounding 96% of analysts rate the stock a "buy" or better, with not a single "sell" opinion in sight. What's more, the consensus 12-month price target of $134.02 stands in uncharted territory, and at an 18.3% premium to current trading levels.

Technically, Facebook Inc (NASDAQ:FB) has enjoyed a steady stream of higher highs and lows since going public, with recent pullbacks contained by its 200-day moving average. In recent sessions, the stock's 20-day moving average has materialized as a layer of support, and a bounce from this level could keep call buyers happy.

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