FireEye Inc (FEYE) Rally Draws Fresh Batch of Options Bulls

After rallying Friday post-earnings, FireEye Inc (NASDAQ:FEYE) is higher once again and call volume is soaring

Nov 7, 2016 at 3:15 PM
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After adding more than 12% last Friday in the wake of a blowout quarterly earnings report, shares of FireEye Inc (NASDAQ:FEYE) are up 10.2% today at $13.60. While FEYE stock could be reacting to FBN Securities' reiteration of its "outperform" rating and $17 price target, some are also speculating a round of short covering could be lifting the shares. Regardless, FEYE is soaring along with its fellow cybersecurity stocks, and call options are trading at a faster-than-usual clip.

At last check, 16,670 call options had traded on FEYE -- nearly two times the expected intraday amount of 9,917. By comparison, fewer than 3,150 put options have changed hands. In fact, nine of out of FEYE's 10 most active options are calls.

Most popular are the stock's January 2017 13- and 15-strike calls, where a collective 5,330 contracts have traded. Meanwhile, nearer-term traders are targeting FEYE's weekly 11/11 13.50-strike and November 13 calls. It seems safe to assume new positions are being purchased at each of these strikes, as call buyers bet on FEYE stock extending today's rally through the respective expiration dates.

Today's call-skewed session is nothing new among FEYE options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 2.21 calls for each put over the past 20 sessions. Plus, FEYE's Schaeffer's put/call open interest ratio (SOIR) of 0.28 ranks in the 33rd annual percentile. Simply stated, short-term traders are more call-heavy than usual.

However, as suggested above, FEYE is a heavily shorted stock. Short interest jumped 7.1% in the most recent reporting period to 16%, or 6.6 times the security's average daily pace of trading. In fact, there are a record 25 million shares sold short on FEYE. As such, it's possible some of the recent call buying, particularly at out-of-the-money strikes, is due to short sellers hedging their bearish bets against any upside risk.

Looking at the charts, though, short sellers have done well in betting against the stock. Despite FireEye Inc's (NASDAQ:FEYE) recent rally, the shares remain 34.4% lower year-to-date. Plus, the stock hit a record low of $10.87 last Thursday, while today's surge ran out of steam at $13.90 -- an area that roughly coincides with a 23.6% Fibonacci retracement of FEYE's mid-November 2015 highs and November 2016 lows.

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