Are Options Traders Over Facebook Inc (FB)?

Bearish bets predominate FB after the company announced a new professional platform

Dec 10, 2015 at 11:42 AM
facebook twitter linkedin

Facebook Inc (NASDAQ:FB) is trading 1% higher, last seen at $105.62, after the company announced early this morning the launch of a professional version of its massively popular social network. However, FB puts are crossing the tape at a faster-than-usual pace today.

Facebook at Work, which could compete more directly with existing professional network LinkedIn Corp (NYSE:LNKD), will appear and function more or less the same as the Facebook platform everyone is used to. But the service will allow separate, professional profiles to be created and aims to facilitate communication and collaboration within the workplace. For a few dollars per user per month, a premium service will also provide analytics and customer support. FB has already found a partner in Club Med, which will test the platform among employees at its resorts.

FB has been a force to be reckoned with almost since its inception. The company began trading publicly in 2012, and after struggling the first year, the stock began to soar, more than tripling in value since mid-2013. So far this year, the shares have added 35%, and hit an all-time high of $110.65 in November. 

Analysts have been singing Facebook Inc's praises in light of its recent high. Only one brokerage covering FB gives it a "hold," compared to 30 "buy" or better ratings. But options traders aren't so sure that new heights are ahead. In fact, put buying has picked up lately, as the stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 0.51 -- higher than 78% of comparable readings in the past year.

And today's action is no exception. Puts are crossing the tape at 1.2 times their usual intraday pace. In fact, the most active option is currently the weekly 1/22 95-strike put, with more than 16,000 contracts traded so far. Traders are paying a volume-weighted average price (VWAP) of $1.13 for the option, meaning that they will see gains if the underlying security falls below $93.87 (strike minus VWAP) by the option's expiration, which is over a month away.

If Facebook Inc (NASDAQ:FB) continues to rally, however, the most these buyers stand to lose is the initial premium paid. And that could be chalked up to an "insurance premium," if the buyers are protective in nature. By purchasing 95-strike puts, FB shareholders could be locking in gains in case the stock retreats into double-digit territory in the short term.


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Schaeffer's Daily Bulletin Offer


Special Offers from Schaeffer's Trading Partners