Traders yearn for social media star
07/20/17

Let’s talk about tech, baby.

After all, it’s the buzz this week, and will likely remain the talk of the town as earnings come out. Options activity spiked on Tuesday and got even hotter the following session as buyers turned to Facebook (NASDAQ: FB), whose numbers are due after the closing bell next Wednesday, July 26.

The social-media giant is usually so busy that individual transactions don’t stand out, but yesterday it saw some the biggest prints in the entire market. 

Traders logged on shortly after the opening bell to scoop up 21,662 September 160 calls for $8.95. They sold an equal number of September 150s for $16.05, so it looks like they initially jumped on board when the social media juggernaut was lower, then made a killing as it blasted to new highs.

Owning calls fixes the price where a security can be purchased. The 160s will double if FB climbs another 8 percent to $177.90 and triple from a 17 percent move to $186.85. Breakeven is at $168.95 and they’ll go worthless if the stock crumbles below $160. FB rose 1.28 percent to $164.14 yesterday, the sixth straight session it established a new record high.

All told, it was a stand-out showing. Total option volume was the highest in at least three weeks and blew past usual top-dog Apple (NASDAQ: AAPL). Calls also outstripped puts in FB by a bullish 3-to-1 ratio.

Wall Street has found a lot of reasons to “like” FB. Its messenger app, said analysts, is on the verge of becoming a major revenue driver.1 Its Instagram service is devouring competitor Snap, said others.2 Channel checks show major traction in advertising sales, raved another.3 Amid a market noted for its frothy valuations, some even say FB’s valuation is (GASP!) attractive.4 And then there are hopes for its Oculus augmented reality business.5

So there seems to be a lot going on in the House of Zuckerberg.

Facebook (FB), 6-month chart

Source: OptionsHouse by E*TRADE.

Some traders were so enthused they didn’t even want to wait for earnings. They piled into the July 165 calls, which expire tomorrow, paying $0.90 to $1.56 for the bigger chunks. Patience might be a virtue, but it’s not one embraced by these guys.

Maybe that’s why they love options. Then there’s the added fact that they provide a relatively low-cost means to play moves in a sector increasingly dominated by triple-digit monsters like FB, AAPL, Alphabet (NASDAQ: GOOGL), and Nvidia (NASDAQ: NVDA). 

Amazon.com (NASDAQ: AMZN), technically a consumer-discretionary stock but still widely associated with tech, is now firmly ensconced in the 4-digit club. The online retail colossus reports just one day after FB. Here are some other key names to watch in the near-term:

  • Monday, July 24: GOOGL
  • Tuesday, July 25: Texas Instruments (NYSE: TXN)
  • Wednesday, July 26: FB, Juniper Networks (NASDAQ: JNPR), Lam Research (NASDAQ: LRCX)
  • Thursday, July 27: Baidu (NASDAQ: BIDU), Intel (NASDAQ: INTC), Expedia (NASDAQ: EXPE), MasterCard (NYSE: MA) 

Bottom line: Tech bulls are piling into the space as earnings draw nigh. 

 

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1. TheStreet.com: This Is Facebook's Next Major Catalyst. 7/12/17.

2. TheStreet.com: Facebook Just Found Yet Another Way to Stick It to Snapchat. 7/14/17.

3. StreetInsider: Facebook (FB) PT Raised to $185 at Needham & Company. 7/19/17.

4. CNBC: Facebook stock could be set to surge on earnings. 7/19/17.

5. Business Insider: Facebook is reportedly planning a much cheaper VR headset for 2018. 7/13/17.