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Facebook Options Traders Think the Stock Can Rise More


Dec. 2 2019, Updated 7:13 p.m. ET

Facebook (FB) stock closed trading at $201.64 on November 29, falling 0.18% from the previous trading session. This performance lagged behind the S&P 500’s (SPX) 0.40% decrease on the day. Meanwhile, the Dow Jones Industrial Average (DJIA) fell 0.40%, while the tech-heavy Nasdaq plunged 0.46% at the same time.

Over the past week, there have been several bullish bets placed on the stock, suggesting that it could rise higher in the coming weeks and months. Let’s see what these options market moves imply for individual investors.

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Options traders make massive bullish bets on Facebook

Some options traders are betting that Facebook stock continues to rise in the coming weeks and months. Over the past several days, there was a purchase of 6,027 $207.50 December 13 call options for $1.34 per contract. Moreover, this purchase brings the total number of open contracts to about 7,327. This means that the bet has a total dollar value of about $1 million, describing this transaction as a modest, bullish bet.

At closing that day, the stock was priced at $201.64, which means that if the stock can reach the strike price, the common stock has an upside potential of about 3.5% from current levels. If the options buyer plans to hold the options until expiration, the price needed to earn a profit would be $208.84, excluding costs and commissions. 

Also, the open interest levels for December 20 $207.40 calls increased significantly this week. According to Barchart.com, the open contracts increased by 4,082 contracts to about 6,713. The contracts were traded at $2.05 as of Friday.

So, the open interest represents a total dollar value of about $1.5 million. For the buyer of the $207.40 calls to earn a profit, Facebook stock would need to rise to around $209.45. That’s a gain of about 4% from the current levels.

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Finally, the open interest levels for January 20 $210.00 calls have seen an increase over the past week. According to Barchart.com, the open contracts surged by 1,935 contracts to about 22,250. This is a large wager considering a total dollar value of the transaction of about $8 million. For the buyer of the $210.00 calls to earn a profit, Facebook stock would need to surge to around $213.50.

How much volatility are options traders expecting in FB stock?

The implied volatility for the options, at a $200.00 strike price that expires on December 20, stands at 11.02% for Facebook stock. This figure means that investors and traders expect modest stock moves in one direction or the other. For instance, the SPDR S&P 500 Trust ETF (SPY) implied volatility level stands at 11.04% for the same expiration date, meaning that traders expect that the Facebook stock’s volatility levels will be closely correlated with the overall market figures.

If we take a closer look at the December 20 option chain, we can see a bid/ask for the $200.00 call option of $5.30/$5.40. We can also see a bid/ask for the $200.00 put option of $3.35/$3.40. Please check out the options strike closest to the last FB closing price of $201.64. Looking at these numbers, we can calculate the expected price move using the mid-prices of these options:

3.375 (200.00 put) + 5.35 (200.00 call) = 8.725/201.64 = 4.3%

As you can see, the options imply that FB could rise or fall by ~4% by the December expirations from the $200.00 strike price. To assess the expected price movement, we utilize a long straddle strategy. This estimation would place the stock in a trading range of $193.50–$209.66 by the expiration date.

Additionally, the calls at the $200.00 strike price outweigh the put options by about 5:1. There are 32,512 open calls versus 6,459 open puts. This imbalance suggests a strong bullish market sentiment for Facebook stock.

Putting it all together, we can see that the overall market sentiment for the stock is bullish. Moreover, based on implied volatile levels, the stock could rise or fall 4% in the coming three weeks. Meanwhile, trades from the options market imply a 4%–7% upside going forward. 

If you’re interested in more analysis like this, check out Disney Stock Options: Still a Great Buy after Disney+?, Uber Technical Analysis Suggests 2%–5% Upside, and Canopy Growth Technical Analysis Looks Bullish.


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