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After tagging a record high of $45.62 on Thursday, Facebook Inc (NASDAQ:FB) is taking a bit of a breather today. Despite an early price-target hike, the stock has dipped 1.1% to $44.28, and option traders are either gambling on a steeper pullback, or are locking in gains on their FB shares.
In afternoon action, FB has seen roughly 113,000 puts cross the tape -- a 41% mark-up to its average intraday volume. The stock's 30-day, at-the-money implied volatility (IV) is up 1.8 percentage points at 37.2%, reflecting escalating demand for FB options.
The near-the-money September 44 put has seen more than 28,500 contracts change hands at a volume-weighted average price (VWAP) of $0.64, making it the most active strike of the day. Most of the puts crossed on the ask side -- including notable blocks of 5,000 and 3,710 contracts -- and volume has surpassed open interest, hinting at buy-to-open action. IV on the put is trending higher, and the International Securities Exchange (ISE) also points to newly purchased positions.
By purchasing the puts to open, the bearish traders will begin to make money if FB dips below $43.36 (strike price minus VWAP) within the next week, which represents the remaining shelf-life of the contracts. Risk, meanwhile, is limited to the initial premium paid for the puts, should FB remain north of $44 through the close on Friday, Sept. 20.
However, if the buyers are also Facebook Inc (NASDAQ:FB) shareholders, their primary goal is for FB to extend its quest for new highs; the puts were simply purchased as "insurance." By buying protective puts, the shareholders lock in an acceptable price at which to sell their shares ($44, in this case), should FB take a turn for the worse in the short term.
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