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Short-term bears set their sights on Facebook Inc (NASDAQ:FB) during Tuesday's session, as indicated by a substantial overnight increase in open interest at the stock's May 26 put. A total of 9,742 contracts were traded at this strike yesterday, with roughly 80% crossing the tape closer to the ask price -- suggesting they were bought. Implied volatility on this front-month FB option rose to 53.7% by the close, and open interest jumped by 6,525 contracts as a result of the day's activity.
Those May 26 puts traded at a volume-weighted average price (VWAP) of $1.30, which means front-month option bears will break even on a move down to $24.70 (strike price less VWAP) by Facebook Inc shares. Based on Tuesday's closing price of $25.98, put buyers are looking for FB to lose more than 4.9% by the close on Friday, May 17, when these options are set to expire.
The stock has shed about 2.4% so far in 2013, but Facebook has found a reliable floor in the $25 neighborhood. This area contained the equity's lows in late December 2012, and has held up as support during a few recent tests.
However, like yesterday's front-month put buyers, short sellers are increasingly betting on a breakdown for FB. Short interest on the stock ramped up by 36.9% during the past two reporting periods, pointing to increased expectations for an imminent Facebook free-fall.
Traders should stay tuned to FB next week, as the company is due to report its first-quarter earnings after the market closes on Wednesday, May 1. Currently, analysts are expecting a profit of 12 cents per share from the social networking site.