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Put Players Descend Upon Facebook Inc (FB) in Droves

Put volume surges on FB ahead of earnings

by 4/18/2013 2:23 PM
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Facebook Inc (NASDAQ:FB) is seeing a rare spike in put volume today, as approximately 119,000 of these contracts have changed hands so far -- more than doubling the security's anticipated intraday volume. By comparison, around 92,000 calls have crossed the tape. However, not all of this activity is bearish in nature, as one speculator used back-month puts to place a neutral-to-bullish bet on the stock.

More specifically, the May 22 put has snagged the lion's share of the attention, with nearly 40,400 contracts exchanged so far today. A significant portion of the volume traded as one large block totaling 27,688 puts at the bid price of $0.27 each. Since this option is currently home to open interest of just 6,711 contracts -- and implied volatility has edged 3.1 percentage points higher since the opening bell -- it's very likely that new positions have been initiated here.

By selling these puts to open, the trader is expecting Facebook Inc -- presently priced at $25.20 -- to remain north of the $22 level through the close on May 17, when these soon-to-be front-month options expire. This would render the options worthless, and allow him to pocket the initial premium received from his put sales. At last check, the delta for this option was docked at negative 0.16, giving them just a 16% chance of finishing in the money.

Elsewhere, although FB sports a six-month gain of nearly 34% -- and has outpaced the broader S&P 500 Index (SPX) on a relative-strength basis during the last 20 sessions -- bearish speculation continues to grow on the social networking site. Short interest ramped up by almost 37% over the past two reporting periods, and now these pessimistic bets make up a healthy 3% of the equity's available float. From a contrarian perspective, the stock could end up benefiting from a wave of short-covering activity in the near term.

Also of note, Facebook Inc is due to reveal first-quarter earnings on May 1, and has topped consensus bottom-line projections in each of the past three quarters. Analysts are expecting a profit 13 cents per share. Another earnings win could potentially push the shares higher, which would bode well for today's put seller.


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