Call Buyers Blast Fitbit Inc (FIT) on Post-Christmas Pop

Fitbit Inc (FIT) is rallying on news of strong app downloads

Dec 27, 2016 at 10:58 AM
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Wearable tech stock Fitbit Inc (NYSE:FIT) is on fire this morning, adding 4.3% to $7.60 following reports the company has seen strong app downloads since Christmas. The shares have had a brutal year, hitting a record low of $7.20 last Friday. But today's bounce has call players rushing to FIT's options pits, betting on a prolonged rally for the long-term underperformer.

Jumping right in, FIT calls are changing hands at triple the expected intraday rate, with more than 5,600 contracts on the tape so far. Leading today's action are the weekly 12/30 8- and 7.50-strike calls, where it seems safe to assume new positions are being bought to open. If this is indeed the case, call buyers are hoping for FIT shares to continue their journey north through this Friday's close, when the weekly series expires.

Call buying is nothing new in FIT's options pits, however. Over the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen nearly six calls purchased for each put. Moreover, the resulting call/put volume ratio of 5.81 sits higher than 76% of the past year's readings.

Recent buyers of FIT's short-term options could also be getting a bargain. The stock's Schaeffer's Volatility Index (SVI) of 54% sits in the low 10th percentile of its annual range, indicating near-term options are pricing in unusually low volatility expectations at the moment.

It's also worth noting that some recent call buyers may not be so bullish toward the stock, however. Nearly 32% of FIT's total float is currently wrapped up in short interest, accounting for about a week's worth of trading, at the equity's average daily pace. This suggests some short sellers may have been picking up protective calls as a hedge for their bearish bets. Elsewhere on the Street, pessimism toward FIT seems to be the norm, with 15 of 18 covering analysts maintaining a "hold" or worse opinion.

Given FIT's technical backdrop, this generally gloomy sentiment setup makes sense. The shares have dropped almost three-quarters of their value in 2016, and have spent nearly three months slumping under pressure from the 20-day moving average. However, with a 14-day Relative Strength Index (RSI) of 20 -- deep in oversold territory -- Fitbit Inc (NYSE:FIT) could be due for some relief. And should the prevailing bearish sentiment begin to unwind, there appears to be plenty of buying power to boost the stock higher.

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