I had to blink recently, because I thought FB was just a $20 stock.? Nothing makes momentum traders happier than an upgrade of a whole bunch of technology stocks at once.? FB, AAPL and YHOO all got the nod today from influential analysts and banks.? We have had a small short put spread position in YHOO in our Strategy Letter for a while now, so I agree with the bullishness.? One thing about the rally in FB is that it was accompanied by a rise in volatility.? That I think is interesting.
Currently the 30 day implied volatility in FB is around 48%.? The thing is though, that FB has a 30 day realized volatility around 74%.? The name has been a consistent mover, and I don?t think things are going to change a whole lot.? Note below in the Livevol? chart that the IV has been consistently below the HV on the 30 day number.? The gamma in options have been outperforming by a large degree for the last several weeks.
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chart by Livevol(r) www.livevolpro.com
A detailed look below at the option volatilities shows a couple of things. One is the volatility is rising everywhere (green series), and two, the ATM options (tallness) are the cheapest.? Usually, when FB options get cheap, I look at the Weekly options.
At a mid-40s Implied Volatility, I think the gamma is underpriced.? Both the Nov Weeklies and December options look like a buy.
The Trade
The most aggressive gamma trade would be buying the FB ATM options in the Weeklies expiring on Friday.? A December ATM straddle or strangle would work too.? Hold through the week or exit with a 20% winner.
I have a position in FB.