Calls Hot as Sector Headwinds Hit FireEye Inc (FEYE)

FireEye Inc (NASDAQ:FEYE) is falling, after fellow cybersecurity name Fortinet Inc (NASDAQ:FTNT) gave a disappointing forecast

Oct 12, 2016 at 11:00 AM
facebook X logo linkedin


Cybersecurity stocks are taking a hit today, as disappointing guidance from Fortinet Inc (NASDAQ:FTNT) overshadows a positive earnings reaction for Barracuda Networks Inc (NYSE:CUDA). FireEye Inc (NASDAQ:FEYE), for instance, was last seen down 2% at $13.05 -- although the equity has come off its intraday lows on news Vera Bradley, Inc. (NASDAQ:VRA) has hired FEYE firm Mandiant to investigate a security breach. Meanwhile, options activity is accelerated in early trading, with calls having a definitive lead over puts.

By the numbers, around 4,400 FEYE call options have changed hands, versus around 750 put options. This is 1.5 times the total contracts that are typically traded at this point in the day. While volume is still light on an absolute basis, the stock's October 12 call has seen the most action, and it seems safe to assume new positions are being purchased here. In other words, call traders are betting on FEYE to maintain its perch above the strike through front-month options expiration at next Friday's close.

More broadly speaking, call buyers have been active in FEYE's options pits in recent months. 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 7.82 ranks in the 95th annual percentile. Simply stated, calls have been bought to open over puts at a near-annual-high clip.

Drilling down on the front-month series, peak call open interest is found at the October 15 strike, where 6,308 contracts reside. According to the major options exchanges, the bulk of these contracts have been bought to open, meaning traders are eyeing a breakout above $15 by next Friday's close.

Considering FEYE's long-term technical troubles -- the stock is down 58% year-over-year, and has barely skimmed $15 over the past month -- it's possible some of the call buying at this out-of-the-money strike is a result of short sellers hedging against any upside risk. In fact, short interest accounts for a lofty 15.3% of FEYE's available float -- and with 23.2 million shares sold short, these bearish bets are at their highest perch on record.

Regardless of the reason, premium buyers are currently getting a relatively good deal on FEYE's short-term options. The security's Schaeffer's Volatility Index (SVI) of 47% ranks lower than 97% of all comparable readings taken in the past year, meaning low volatility expectations are priced into FireEye Inc's (NASDAQ:FEYE) near-term options.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.
 

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.


Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!