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Facebook Inc (FB) Call Seller Bets on Overhead Resistance

One trader sold to open more than 6,000 Facebook Inc calls

by 5/21/2014 11:53 AM
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Facebook Inc (NASDAQ:FB) calls are trading at a slightly slower-than-usual pace today, but still more than double the number of puts exchanged. Short-term strikes are especially in demand, as each of the 10 most active options will expire within the next five weeks.

Garnering noteworthy attention in FB's options pits is the weekly 6/27 64.50-strike call, where 6,163 contracts have traded. The majority of these were exchanged when a 6,150-contract block crossed the tape less than 45 minutes into the session -- near the bid price for $0.72 apiece, suggesting the lot was sold. Also, with just 41 contracts in open interest here, it's safe to assume the bets were freshly minted. In total, the call seller collected a premium of $442,800 (premium received * number of contracts * 100 shares per contract).

Simply stated, this trader wants Facebook shares -- currently 1.3% higher at $59.34 -- to remain below $64.50 through the close on Friday, June 27, when the weekly options expire. If that happens, he will retain the premium collected as profit. However, if the social networking stock rallies beyond the strike, the call writer risks being assigned, and having to sell the shares for $64.50 apiece, no matter how much they're worth.

In essence, today's call seller is gambling on FB's recent price history to continue. Since hitting a record high of $72.59 on March 11, the shares have tumbled more than 18%, and have faced resistance in the $60-to-$64 area for the past two months. As such, delta, on the weekly call rests at 0.23, denoting a less than 1-in-4 chance of an in-the-money finish at expiration.

Nevertheless, now is not a great time to be selling FB options, as the equity's Schaeffer's Volatility Index (SVI) of 36% ranks lower than 80% of all similar readings from the previous year. In other words, short-term contracts are relatively inexpensive right now, from a volatility perspective.

Finally, on the fundamental front, Facebook Inc (NASDAQ:FB) announced it will expand its video advertising service to seven countries outside the U.S. The overseas markets participating in the rollout are Australia, Brazil, Britain, Canada, France, Germany, and Japan.

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