Call Players Rush Fitbit Inc (FIT) on Takeover Chatter

Fitbit Inc (FIT) calls are changing hands at twice the usual intraday pace

Aug 15, 2016 at 2:24 PM
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Unconfirmed takeover chatter has fitness wearables maker Fitbit Inc (NYSE:FIT) flying high today, up 4.8% at $15.69. The shares are still sitting on a painful 65% year-over-year loss, but are on pace to close above their 160-day moving average for the first time ever. The stock has seen a boost since swinging to its first-ever post-earnings gain earlier this month, and seems to be setting its sights on the tough-to-topple $16 area. FIT has also attracted some unusual activity in its options pits, where calls are changing hands at twice their average intraday rate.

Digging right in, FIT has seen more than 27,000 calls traded so far, compared to just over 7,000 puts. Most active by a mile is the August 15.50 call, with nearly 12,000 contracts on the tape. Buy-to-open action is taking place at this now in-the-money strike -- not too surprising, as the option's delta has soared to 0.59 from 0.31 at Friday's close, indicating a roughly 59% chance of expiring in the money.

The call currently has a volume-weighted average price (VWAP) of $0.47, meaning call buyers will profit if shares of FIT rally above $15.97 (strike plus VWAP) by expiration this Friday night. Should the stock retreat below the strike by front-month expiration, however, the most traders stand to lose is the original premium paid.

Despite the stock's dismal performance over the long-term, call buying has long been a popular strategy in FIT's options pits. But speculators have actually been less call-heavy than usual of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 1.58 shows long calls easily outpace puts, but ranks in the bottom one-third of all readings taken in the past year.

There's also good reason to believe not all recent call buyers are bullish. Short interest on FIT has been on the rise, climbing 13.7% in the most recent two-week reporting period. In fact, these bearish bets now sit at a record high, representing nearly 38% of the stock's total float. At Fitbit Inc's (NYSE:FIT) average daily pace of trading, it would take about eight sessions to cover all these bearish positions.

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