FireEye Buyout Buzz Sparks Options Trading Spike

FireEye Inc (FEYE) is the subject of takeover speculation and increased interest among options traders

Feb 23, 2017 at 2:27 PM
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Options traders have FireEye Inc (NASDAQ:FEYE) calls in the crosshairs. Prompting the raft of action is a report by Cincarious Research, claiming LifeLock -- owned by Symantec Corporation (NASDAQ:SYMC) -- is in buyout talks with its sector peer. The alleged deal is for $16 per FEYE share, but inside sources recently dispelled the rumors. At last check, the M&A buzz had FEYE shares 1.5% higher at $11.39, with intraday stock volume only 2 percentage points from an annual high.

Meanwhile, as alluded to, call options are flying off the shelves at five times the expected rate for this point in the afternoon. In fact, intraday call volume is docked in the 99th percentile of FEYE's 12-month range. Digging deeper, it appears buy-to-open activity is transpiring at the weekly 2/24 11.50- and 12-strike calls, as well as the March 12 call. In other words, options traders anticipate the cybersecurity stock will keep rallying through the respective expirations, at the close tomorrow and on Friday, March 17.

Short sellers could be getting nervous as FEYE heats up. During the most recent reporting period, short interest spiked 16.5%, and now accounts for almost 16% of the stock's total float. This represents over a week's worth of pent-up trading activity, at typical daily volumes.

Then again, it's hard to fault short sellers for upping their bearish exposure. From a long-term perspective, FEYE shares have been sliding sharply, and recently touched a record low. Year-over-year, the stock has given back over one-quarter of its value, and over the past two years, it's shed nearly three-quarters of its value.

From a contrarian perspective, FireEye Inc (NASDAQ:FEYE) has potential to fade even further, despite today's gains. For one, short sellers could continue piling on, increasing pressure on the shares. For another, the stock could get hit with downgrades, as there's not a single "sell" rating on FEYE among 22 tracking analysts.

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