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Facebook Inc (FB) Fans Gamble On Support

FB investors are selling weekly puts

by 11/20/2012 12:52 PM
Stocks quoted in this article:

Option traders have been picking up puts over calls on Facebook Inc (NASDAQ:FB - 23.12) recently, as evidenced by the latest data from the major options exchanges. However, in today's session, it looks like speculators are employing these traditionally bearish options to place neutral-to-bullish bets on the social networking concern.

Specifically, the equity's out-of-the-money weekly 22-strike put has seen more than 5,800 contracts change hands on open interest of fewer than 4,900, pointing to newly initiated positions. Digging deeper, 97% of the puts crossed the tape at the bid price, suggesting they were sold.

By writing the puts to open, the sellers are expecting FB to stay north of $22 through the holiday-shortened week. In this best-case scenario, the puts will remain worthless, and the sellers can pocket the initial premium received. However, should FB retreat beneath the $22 marker by Friday's early close, the sellers could be assigned -- meaning they'd have to buy FB shares at $22 a pop, representing a premium to what they'd pay on the Street.

As alluded to earlier, FB speculators preferred puts over calls long before today. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.59, indicating that investors have bought to open more FB puts than calls during the past two weeks. By purchasing a put on the stock, the traders expect the shares to breach the strike within the options' lifetime.

Echoing that trend, the security's Schaeffer's put/call open interest ratio (SOIR) stands at 1.31, indicating that puts outnumber calls among options expiring within three months or less. In the newly front-month series of options, put traders have honed in on the December 20 and 21 strikes, which have seen put open interest increase by about 16,000 and 13,000 contracts, respectively, during the past 10 sessions. Nevertheless, the out-of-the-money 19 strike remains home to peak put open interest, with more than 71,000 contracts outstanding.

Since its latest test of support in the $19 region, FB has tacked on roughly 21%, with the shares outperforming the broader S&P 500 Index (SPX) by about 25 percentage points during the past month. The stock is now attempting to solidify support in the $22.50-$23 region, which contained its rally attempts in mid-September and late October. What's more, the aforementioned abundance of out-of-the-money puts could translate into an added layer of options-related support in the near term.

At last check, FB has tacked on 0.8% to wink at the $23.12 level. Yesterday, the company said it will debut a new tool on Black Friday, which will allow online retailers to track the purchases of Facebook members who've viewed their ads.


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