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Despite its recent uptrend, Wall Street rookie Facebook Inc (FB - 31.43) was targeted for a skeptical options play on Tuesday. In fact, it looks like the speculator employed both calls and puts to simulate selling the stock short.
Specifically, symmetrical blocks of 6,800 contracts traded on each side of the September 40 strike. The puts changed hands at the ask price of $9.20, suggesting they were bought, while the calls traded at the bid price of $0.80, implying they were likely sold. Considering both call and put open interest skyrocketed at the round-number strike, it seems the strategist implemented a synthetic short stock position for a net debit of $8.40 per pair of contracts.
Like a short seller, the options trader is betting on FB to decline, but has done so by putting fewer dollars at risk. In this instance, the investor will make money as the stock retreats south of $31.60 (strike minus net debit), as his long puts will gain intrinsic value, and his short calls will remain worthless. On the flip side, the trader's loss is limited to the initial premium paid, as long as FB remains beneath the $40 level through options expiration. However, like the short seller, the investor's risk will increase with each step north of the strike, thanks to the uncovered calls.
From a sentiment standpoint, bearish options plays are par for the course for FB. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 1.41, indicating that traders have bought to open more puts than calls during the past couple of weeks. Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) rests at 1.17, implying that puts outnumber calls among options expiring within three months.
On the charts, the shares of FB were last seen 1.5% lower in the $31.43 neighborhood. Since hitting a post-IPO low of $25.52 on June 7, the stock has rebounded roughly 23%. However, the security is now staring up at the $32-$33 level, which halted FB's rebound attempts for a few days in late May.