Call Buying Nears Extreme Levels on Facebook Stock

FB options traders have shown a very strong appetite for long calls over puts

May 16, 2017 at 1:00 PM
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Call buyers have been rushing to social media giant Facebook Inc (NASDAQ:FB) in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FB has a 10-day call/put volume ratio of 2.22. Not only does this mean call buying has more than doubled put buying over the past two weeks for Facebook stock, but this ratio also ranks in the 96th annual percentile, pointing toward a much healthier-than-usual preference for long calls over puts. 

Looking closer at the data, one of the most popular options during this time frame, based on open interest added, was the May 152.50 call. Data from the major options exchanges shows notable buy-to-open activity taking place here, meaning options traders are betting on FB stock moving above $152.50 by the end of the week, when the contracts expire. The shares of Facebook were last seen 0.2% lower at $149.87, even after the social media company just announced Instagram filters similar to that of Snapchat.

Now is a great time to buy options on Facebook stock, too. For instance, the shares have a Schaeffer's Volatility Index (SVI) of 17%, which ranks in the low 13th percentile of its annual range. This means short-term options are attractively priced, from a historical volatility standpoint. Meanwhile, the security's 30-day implied volatility skew of 4.6% is near an annual low, implying that Facebook put options have rarely been cheaper, relative to calls.

As for analysts, they've been overwhelmingly bullish on the stock. Twenty-eight of 30 analysts give FB shares a "buy" or "strong buy" rating, versus just two "holds" and zero "sells." Plus, Facebook stock has an average 12-month price target of $169.43, representing a 13% premium to current levels.

It's hard to blame them, given the run the equity has had on the charts. Year-to-date, Facebook stock is up over 30%, touching a record high of $153.60 on May 3. More recently, the $149 area has contained intraday pullbacks for Facebook stock, which is likely taking a breather after flirting with overbought territory.

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