Fast Options Light Up One-time Tech Darling

Here's How to Be Ready the Next Time Momentum Stocks Pull Back Like This

Remember FireEye (FEYE)?

The provider of cyber-security products was the talk of the town earlier this decade. It almost quadrupled after its 2013 initial public offering and flirted with triple digits early the following year. But results didn’t catch up with expectations and pretty soon FEYE began a long and painful slide. By last March, it just barely held $10.

But things have looked up since then as management fixes operations and the potential market for any-hacking solutions mushrooms. The stock gapped higher last month after quarterly results confirmed the progress, and it continued to grind upward. Today, options traders jumped on board, looking for a fast blitz higher into the weekend.

They started at 10:01 a.m. ET, amassing the March 18 calls for $0.08 to $0.12. FEYE jolted higher as the orders hit and soon those calls fetched $0.20… then $0.30.. then $0.40, and then $0.50. By the end of the hour, more than 6,000 contracts changed hands.

Those calls, by the way, expire tomorrow. So, they’re clearly looking for a move in a hurry.

Did you miss our post highlighting FEYE last month? Click here for access and make sure to visit Market Insights every day!

But that’s not all. About 15 minutes after the March 18s were bought, the April 20s started to glow. More than 7,500 of those traded for $0.18 to $0.40.

In case you haven’t visited TradeStation’s Knowledge Center recently, here’s a quick explanation: Calls fix the price where investors can buy a stock. Their cheap initial cost helps them manage risk but also generate leverage. That’s why the premiums shot up so quickly from the shares moving less than 10 percent. But there is risk because if no rally occurs, the calls can expire worthless.

Aside from the improving fundamentals, some technicians may see signs of improvement on FEYE’s chart. Not only did it make a new 52-week high after the calls were bought. The stock also had a “golden cross” last week, with its 50-day moving average rising through the 200-day moving average. That’s sometimes viewed as a bullish reversal pattern.

FEYE was up 6 percent to $18.50 in afternoon trading. Overall option volume in the name is triple the daily average, with calls outpacing puts by more than 4 to 1.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.