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Short-term Facebook Inc (NASDAQ:FB) options were in high demand yesterday. In fact, each of the 10 most active strikes from Monday's session will expire within the next four-plus weeks.
One trade worth highlighting consisted of matching lots in the April and May series, which crossed the tape just before the closing bell. Specifically, based on data from the International Securities Exchange (ISE), 8,246 April 59 puts were sold to open, while an identical block of May 55 puts was bought to open, creating a diagonal spread.
In other words, this speculator bet on FB shares closing above $59 at this Thursday's close, when the front-month options expire, but potentially descending below $55 in time for May options expiration. This morning, things aren't looking good for the first leg of the trade (i.e., the short puts), as the stock is off 2.6% at $57.39. While the maximum risk on the long puts is limited to the initial premium paid, losses on the short puts will mount with each step south of $59 the stock takes through the end of this week. Once the April option expires, the trader could also opt to leg into a traditional short put spread by selling to open a higher-strike contract in the May series. This would be reflective of a neutral-to-bullish outlook, versus the outright bearish strategy of leaving the long put open through May expiration.
Fundamentally speaking, Facebook Inc (NASDAQ:FB) is scheduled to report first-quarter earnings after the close next Wednesday. Looking back seven quarters, the social network has topped the Street's consensus bottom-line estimate six times, resulting in an average gain of 8.3% in the following session. This time around, analysts expect a per-share profit of 24 cents from FB -- double last year's figure.