Call Buyers Keep Targeting Troubled FireEye Inc (FEYE)

Call buying continues to be popular, even as FireEye Inc (NASDAQ:FEYE) slumps

Aug 31, 2016 at 3:34 PM
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The past year has been brutal for FireEye Inc (NASDAQ:FEYE). The shares have shed 61% of their value over the last 12 months, including a 0.8% slump this afternoon, to trade at $14.25. The stock has run into trouble around the $18-$19 region for the past six months, as well, and now faces pressure from its descending 200-day moving average -- a trendline FEYE hasn't topped on a closing basis since last August. Despite this uninspiring action on the charts, the stock's call options are hot today, trading at twice the expected intraday rate.

Jumping right in, 21,000 FEYE calls have changed hands today, compared to just 1,500 puts -- landing call volume in the 95th percentile of its annual range. In fact, the 10 most active strikes for the session are calls, with the top spot belonging to the weekly 9/2 14 strike, where buy-to-open activity has been spotted. Buyers of the call are betting FEYE can extend its lead above the $14 level before the close this Friday, when the weekly series expires.

Also intriguing in today's action is a block of 2,000 contracts exchanged at the September 18 call, which the International Securities Exchange (ISE) confirms was bought to open. The buyer of these calls may be betting on a big bounce above $18 before front-month expiration, at the close on Friday, Sept. 16. Alternatively, this trader could be protecting an existing short stock position against such a move -- a strategy we'll discuss more later.

Today's call-heavy activity is hardly new for FEYE. Over the past 10 days at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has amassed an incredible call/put volume ratio of 23.72 -- the most top-heavy reading in over two years. Short-term traders have been unusually call-skewed, as well, per the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.22 -- lower than 89% of the past year's readings.

Still, as mentioned in passing earlier, there is good reason to believe that some recent call buyers are not true bulls. Short interest on FEYE rose more than 10% during the most recent two-week reporting period, and now represents about 15% of the stock's total float. In fact, the 22.4 million shares currently shorted is just a hair shy of a record high. This, together with the fact that peak open interest resides at the deep out-of-money September 20 and 23 calls, suggests short sellers are likely picking up calls as an upside hedge for their bearish stock positions.

Regardless of the motive, FEYE is presenting an appealing short-term options-buying opportunity right now. The stock has a Schaeffer's Volatility Index (SVI) reading of 48% -- in just the 3rd percentile of its annual range -- indicating near-term options should be attractively priced, from a volatility standpoint. Plus FireEye Inc's (NASDAQ:FEYE) Schaeffer's Volatility Scorecard (SVS) of 83 suggest the options market has underpriced the stock's ability to make outsized moves over the past year.

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