Facebook Inc (FB) Bounce Brings Call Buyers to the Table

Facebook Inc (FB) is higher today, but faces potential resistance around the $120 level

Alex Eppstein
Jan 4, 2017 at 3:16 PM
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Options traders are setting their sights higher on Facebook Inc (NASDAQ:FB) this afternoon. At last check, the social media stock had tacked on nearly 2% at $119.15, and the most popular option was the weekly 1/6 119-strike call. All signs point to buy-to-open activity, suggesting traders foresee FB shares extending their lead above $119 through Friday's close, when the series expires.

That said, additional gains might be hard to come by. While up today, FB has nonetheless struggled since topping out at $133.50 in late October. Not to mention, the stock's formerly supportive 40-week move average has seemingly switched roles to resistance.

fb weekly jan 4

Potentially reinforcing technical resistance are huge accumulations of call open interest in the January and February options series. In particular, peak open interest of roughly 57,200 contracts resides at the January 2017 120-strike call immediately overhead, while the February 120 call has another 34,900 contracts. As the hedges related to these bullish bets unwind ahead of expiration, FB could feel the pressure.

If the stock succumbs to headwinds, it's vulnerable to a severe sentiment shift on Wall Street. With 28 of 31 analysts rating FB a "buy" or better -- and not a single "sell" recommendation to be found -- downgrades could be just around the bend. Price-target cuts could be forthcoming, as well, considering the stock's consensus 12-month price target of $155.19 stands in never-before-seen territory.

Meanwhile, after pulling back throughout 2016, short interest is extremely low on Facebook Inc (NASDAQ:FB), at just 1% of its float. This has at least two bearish implications. For one, it means that there's very little sideline cash available to bolster the shares. For another, it leaves the door wide open to additional short selling.

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