FireEye's Options Traders See Bullish Continuation Ahead

FireEye Inc FEYE rebounded 3.7% Thursday following a bearish reaction to the cybersecurity company’s earnings.

FireEye’s earnings were positive, however, with the company reporting sales of $246 million versus the Street’s estimate of $236.9 million and earnings per share of 8 cents, which beat the Street’s estimate of 6 cents.

Earnings do not always predict whether a company’s stock will react in a bullish or bearish way and many traders compare holding options in a company, when earnings are expected, to playing the lottery.

With FireEye’s earnings now reported, a number of options traders bet over $487,901 FireEye’s stock is going higher and the bullish volume that entered the stock predicts the same.

The FireEye Chart: FireEye’s stock has been in a four-month long consolidation pattern since making an all-time high of $25.53 on Dec. 23, 2020. From Dec. 23 until April 12 the stock was held down by a descending trendline and began trading in a sideways channel, under the trendline, before breaking up from it on April 13. FireEye’s stock has now back tested the trendline twice and on Thursday bounced.

FireEye regained both the eight-day exponential moving average (EMA) and the 21-day EMA, and the 8-day EMA is trending above the 21-day EMA, which is bullish.

On Thursday FireEye’s stock printed a large bullish engulfing candlestick on high bull volume. Since volume usually precedes price action this indicates the share price of the stock is headed higher.

Bulls want to see FireEye’s stock jump over resistance near the $21 level. If the stock can regain that level it has room to rise towards $22.64 before meeting more resistance.

Bears want to see FireEyes’s stock fall back under, and lose the support of, the downward sloping trendline which would also push it down under another support at the $18.97 mark. If FireEye’s stock is unable to maintain support near $19 there is little support until $15.45.

The FireEye Option Trades: Below is a look at the notable options alerts, courtesy of Benzinga Pro:

• At 12:05 p.m., a trader executed a call sweep, at the ask, of 3000 FireEye options with a $18 strike price expiring on May 21. The trade represented a $291,000 bullish bet for which the trader paid 97 cents per option contract.
• At 12:05 p.m., a trader executed a call sweep, near the ask, of 320 FireEye options with a $18.50 strike price expiring on May 21. The trade represented a $40,960 bullish bet for which the trader paid $1.28 per option contract.
• At 12:05 p.m., a trader executed a call sweep, near the ask, of 300 FireEye options with a $19 strike price expiring on May 21. The trade represented a $30,300 bullish bet for which the trader paid $1.01 per option contract.
• At 12:54 p.m., a trader executed a call sweep, near the ask, of 589 FireEye options with a $20 strike price expiring on May 21. The trade represented a $40,641 bullish bet for which the trader paid 69 cents per option contract.
• At 1:30 p.m., a trader executed a call sweep, at the ask, of 1000 FireEye options with a $20 strike price expiring on May 21. The trade represented a $85,000 bullish bet for which the trader paid 85 cents per option contract.

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price. A sweeper pays market price for the call option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately.

These types of call option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position.

FEYE Price Action: Shares of FireEye closed up 3.75% to $20.19.