Call Traders React to Deutsche Bank's Bullish Facebook Note

FB calls are trading at two times the expected pace

Apr 2, 2019 at 1:46 PM
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Deutsche Bank analysts this morning released a note on Facebook Inc (NASDAQ:FB) that's getting a lot of attention on Wall Street, lifting the shares of the social media giant and sparking heavy options trading. The brokerage firm wrote that FB could see a $10 billion increase in sales for the fiscal year 2021 thanks to its new focus on shopping for Instagram users. Deutsche thinks that a strong launch of "Checkout with Instagram" -- which hit the public two weeks ago -- could also help the company's flagship platform, particularly the growing Facebook Marketplace feature. Overall, the analysts reaffirmed their "buy" rating and $200 price target, along with the view that FB shares are their top pick among the largest internet stocks.

Options volume for Facebook has shot higher in response to the stock's 3% rise today. The number of calls and puts traded has already topped the daily average, and many weekly options are seeing new positions being opened. The two most popular contracts today are the weekly 4/5 172.50- and 175-strike calls, and all available data suggests traders are buying the options to bet on more upside for FB stock by week's end, when the weeklies expire. The weekly 4/5 170-strike put has also seen notable trading.

This penchant for picking up short-term calls has seen an increase in popularity in recent weeks, but a broader view shows speculators are actually less call-skewed than normal. By the numbers, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.92 ranks in the 99th annual percentile, showing that this near parity in open interest for calls and puts that expire within three months is extremely rare. 

Turning back to the analyst community, most are still bullish on Facebook stock, but more and more have spoken about the risks of regulation. At last check, the equity was set to close today atop $174, which would be its highest finish since August, while its year-to-date return checks in at almost 33%.



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