Bullish Options Activity on Facebook Surges After Deal

The options market is a big fan of Facebook Inc.(FB)'s latest acquisition.

As the stock rises to a record, investors are pouring into bullish options on Facebook shares, with about 2.4 bullish options trading for every bearish one. The biggest bet Thursday is looking for a more than 20% gain over the next month.

“It's total insanity," said Henry Schwartz, president of options-data firm Trade Alert. "Option traders appear to like the deal for Whatsapp."

Late Wednesday Facebook said that it paid $19 billion to buy messaging company WhatsApp. Shares rose 2.3% to $69.93 on Thursday, recovering from an initial drop on the news. The deal is seen helping Facebook’s popularity with younger users, its international development and its mobile business.

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Facebook options trading volume was running at nearly three times its daily average Thursday as investors picked up bullish options. The most-actively traded contract was March $85 call options, which grant the right to buy shares at that price through March 21.

One block of 1,500 March $85 call options traded at midday for 24 cents. That investor needs Facebook shares to soar above $85.24 – or 22% — over the next month to profit. More than 62,000 of those call contracts had traded by midafternoon.

Other active contracts include March $75 and $80 call options. They need to see gains of more than 9.3% and 15%, respectively, to profit.

The amount of trading in options that require such a big move over a short period of time to profit shows "expectations are skewed," said Mr. Schwartz. "It is extraordinarily bullish to a point of concern," he said.

He likened the activity in Apple Inc.(AAPL) options in the summer of 2012, as the iPhone maker neared a peak it has yet to recover. Apple shares reached a high of about $702 in September 2012. On Thursday, the shares were trading for about $530.