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Facebook Inc (FB) Trader Predicts Afternoon Trajectory

Breaking down an iron condor on Facebook Inc

by 5/9/2014 12:11 PM
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Option Brief: Facebook Inc (NASDAQ:FB) has traded on both sides of breakeven today, but was last seen 0.5% lower at $56.48, bringing its week-to-date loss to 6.6%. Meanwhile, one eleventh-hour trader is gambling on FB's end-of-day trajectory by opening a four-legged options spread.

Nine of the 10 most active FB options expire at the closing bell, and all have seen volume exceed open interest, pointing to new last-minute positions. What caught our attention were a pair of simultaneous, 3,000-plus-contract credit spreads -- also known as an iron condor -- at the weekly 5/9 55- and 55.50-strike puts, and at the 58.50- and 59-strike calls.

Digging deeper, the condor was established for a net credit of $0.03 per quartet of contracts. The strategist can pocket this credit as long as Facebook Inc (NASDAQ:FB) finishes today's session between $55.50 and $58.50 -- the sold put and call strikes, respectively. However, if FB strays north of $59 (bought call strike) or sinks south of $55 (bought put strike), he'll forfeit $0.47 per quartet of contracts (difference between bought and sold strikes, less the net credit). In short, the condor seller expects a relatively flat afternoon for FB, and does not see it straying far from its current price through the end of today. And while a net credit of $0.03 might seem slim, it represents the possibility of netting a profit of more than $9,000 (net credit x the number of condors traded x 100 shares per contract) over the course of a few hours.


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