Fitbit Inc (FIT) Option Bears Predict a Pullback By Week's End

Fitbit Inc (FIT) is rallying hard on news of an agreement with UnitedHealth Group Inc (UNH)

Jan 3, 2017 at 2:42 PM
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Fitbit Inc (NYSE:FIT) is getting a lift today on news UnitedHealth Group Inc (NYSE:UNH) will include the company's top-selling Fibit Charge 2 in its "UnitedHealthcare Motion" wellness program. The news has FIT trading 8.1% higher at $7.91, on pace to close above both its 10- and 20-day moving averages for the first time since late September. Meanwhile, FIT options are flying off the shelves -- but not everyone is expecting the gains to continue.

FIT puts are changing hands at eight times the typical intraday rate, but lag calls as usual -- with roughly 23,000 put options on the tape, compared to 31,000 calls. What's more, put volume is on pace to finish the day in the 97th percentile of its annual range. The weekly 1/6 series is dominating today's action, accounting for seven of the 10 most active strikes, and leading the way is the 7.50 put, where it looks like new positions are likely being bought to open. If this is the case, put buyers are looking for FIT to slide back below the $7.50 level before the close this Friday, when the weekly series expires.

Taking a step back, call buying has been the more popular strategy by far among FIT options traders in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen 8.61 calls purchased for each put during the past 10 sessions -- a ratio higher than 89% of comparable readings from the last 12 months.

Of course, some of those call buyers may not be so bullish. After all, short interest represents a hefty 31.5% of FIT's available float, even after these bearish bets dropped by 24% in the two most recent reporting periods. At the stock's average pace of trading, it would take nearly a week to cover all the shorted shares. In other words, it's likely some short sellers have been scooping up calls to protect against the kind of surprise pop FIT is seeing today.

Elsewhere, analysts have yet to budge from their skeptical posture, with 15 of 18 rating the stock a "hold" or worse. However, the average 12-month price target of $10.75 sits in a region Fitbit Inc (NYSE:FIT) hasn't seen on a closing basis since before its early November earnings-inspired bear gap.

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