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Facebook Inc (FB) Takes a Breather, Triggering Put Buying

Facebook Inc puts are trading at a faster-than-usual clip this morning

by 2/25/2014 11:11 AM
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Option Brief: After settling at a record closing high of $70.78 yesterday, Facebook Inc (NASDAQ:FB) is taking a breather this morning, down 0.8% at $70.19. The stock is still sitting on a month-to-date gain of 12.2%, and traders collectively cheered the company's purchase of WhatsApp -- which CEO Mark Zuckerberg just deemed "worth more than $19 billion" -- yet option traders today are picking up FB puts at a faster-than-usual clip.

So far, FB has seen roughly 62,000 puts cross the tape, representing a 25% mark-up to its average intraday volume. Furthermore, the stock's 30-day at-the-money implied volatility (IV) is up 4.9% at 41.8%, underscoring the demand for short-term contracts.

Most popular is the March 67.50 put, where close to 13,300 contracts have traded, primarily at the ask price. Plus, IV on the option has risen 2.1 percentage points, hinting at buy-to-open activity.

By purchasing the out-of-the-money puts to open, the buyers have one of two motives: to profit from a decline beneath $67.50 by March options expiration, or to hedge their Facebook Inc (NASDAQ:FB) shares. In the case of the latter, the traders want FB to extend its quest for record highs, but the puts lock in an acceptable exit price ($67.50 per share) for their stakes, should the security pull back in the next few weeks. Whatever the motive, the most the traders have risked is the initial premium paid for the puts -- which isn't much, relatively speaking, considering the stock's Schaeffer's Volatility Index (SVI) of 39% registers in just the 26th percentile of its annual range.


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