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Facebook Inc (FB) Option Trader Sets a Short-Term Ceiling

Facebook Inc's August 75 call was sold to open yesterday

by 7/1/2014 9:05 AM
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Outside of an early spring sell-off of momentum names, Facebook Inc (NASDAQ:FB) has had a tremendous run on the charts. Year-to-date, in fact, the stock has tacked on more than 23% to trade at $67.29 -- easily besting the broader equities markets, as well as the majority of its sector peers. This didn't stop one speculator on Monday, though, from betting on the equity to stall out near record-high territory during the next seven weeks.

Diving deeper, it appears the option trader may have sold to open a 4,000-contract block of August 75 calls for $1.37 apiece, resulting in an initial credit collected of $548,000 (number of contracts x 100 shares per contract x premium received). This also represents the maximum potential reward on the play, which can be pocketed as long as the equity remains south of $75 through the close on Friday, Aug. 15, when back-month options expire. Should the security rally past this mark, though, Monday's call seller could be on the hook to deliver FB shares at $75 each -- a discount to what they'd get on the Street.

As touched upon, this call writer may be keeping a close eye on the charts, considering Facebook Inc's (NASDAQ:FB) March 11 record peak of $72.59 rests 3.3% below the strike price. However, this speculator may also be looking to take advantage of relatively lofty premiums. Specifically, implied volatility (IV) at the August 75 call is currently inflated relative to the stock's 40-day historical (realized) volatility (39.5% vs. 29%), meaning now is an opportune time to sell premium here, as opposed to buy it. Plus, the company is tentatively slated to report earnings later this month, which could cause IV to drop, allowing her to buy back the options at a lower cost.


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