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Facebook Inc (FB) Trader Sets a $5 Million Ceiling

Facebook Inc's September 80 call was sold to open on Monday

by 7/29/2014 9:31 AM
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Last week's well-received earnings report sent Facebook Inc (NASDAQ:FB) soaring to a new record peak of $76.74, but the stock has since pared a slim portion of these gains to linger near $74.50. Given that the equity stopped just short of $80, one trader on Monday made a bold bet on this round-number area serving as an overhead ceiling for FB over the next two months.

A massive block of 27,010 September 80 calls were sold to open at a bid price of $1.86 apiece, resulting in an initial credit of $5.02 million (number of contracts * premium collected * 100 shares per contract). This is also the maximum potential reward for the call seller, should FB settle south of the strike at the close on Friday, Sept. 19 -- when the back-month options expire. Conversely, if the stock stages a sharp rally north of the strike between now and then, the speculator could be at risk of assignment and face theoretically unlimited losses.

In the near term, Facebook Inc (NASDAQ:FB) could encounter some headwinds near the $75 mark over the next several weeks. Specifically, peak front-month call open interest of 64,034 contracts currently resides at the August 75 strike, and heavy accumulations such as these can often serve as resistance, as the hedges related to these bets unwind ahead of expiration. This morning, FB started the session 0.6% lower.


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