Facebook Options (FB): Unusual Trading Activity

| June 5, 2012 | 0 Comments

FB OptionsOptions in troubled company Facebook (FB) are experiencing a large amount of unusual trading activity this morning.

If you’ve turned on any business TV show in the last few days, you’ve heard about Facebook’s recent IPO debacle.

After hitting a high of $45 a share the day it started trading, the stock has been moving lower ever since.  FB closed at the end of yesterday’s trading session at $26.88.

A beating of just under 45%.

However, experienced option traders take a stock like FB sitting at these fast moving lows and weigh whether it’s time to jump in or abandon ship.

One trader this morning decided it was time to jump in.  And jump in big!

According to our tracking system, the trader came in and sold 8,000 FB June $27 strike put options at an average price of $1.15 per share.  The total premium collected on his 8,000 contracts of Facebook was a cool $920,000.

Remember, put selling is a bullish strategy.

The option trader needs FB to stay at or above the strike price by expiration to profit.

And with Facebook starting to show signs of leveling off, this trader’s clearly betting the stock has finished falling. 

Now, all he needs in order to keep the full premium is for FB to stay at or above $27 by June expiration. 

If that happens, the trader will be one happy camper.

While I like the attractive premium that was collected, I’m not convinced this trade’s a lock.

I’ll explain why in a moment… but first, a few words about the company.

For those of you who don’t know, Facebook operates as a social networking company worldwide.  They build tools that enable users to connect, share, discover, and communicate with each other.

The company enables developers to build social applications on Facebook and to integrate their websites with Facebook.  All this while offering products that enable advertisers and marketers to engage with its users.

So, what’s the problem?

Many advertisers are unsure if they are spending money wisely on Facebook ads today.  And if they hesitate, Facebook’s revenue could be in for a significant drop.

In addition, regulators may prevent the company from tracking its users. This significant regulatory action could detract from the value of its advertising platform.  And it could lead to a mass exodus of users.

These are huge issues for Facebook, and concerns about them could drive the stock a lot lower from here.

I hope Facebook pulls an about face and turns to the upside for this option trader.  But this trade wouldn’t be my first bet on the stock.

Let’s see what happens.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

 

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.