Pre-Earnings Facebook Inc (FB) Put Trader Places Risky Bet

One options trader initiated a put ratio spread on Facebook Inc (FB)

by Alex Eppstein

Published on Apr 18, 2016 at 2:58 PM

Facebook Inc (NASDAQ:FB) is getting a lift from Credit Suisse's $2 price-target hike to $142 -- record-high territory. At last check, the tech stock was 0.7% higher at $110.37. Meanwhile, there's some interesting activity taking place in FB's options pits.

In particular, Trade-Alert is highlighting a put ratio spread at the weekly 4/29 100 and 105 strikes. Specifically, one options trader sold to open 16,670 contracts at the lower strike for $1.01 apiece, and simultaneously bought to open 5,000 contracts at the higher strike for $2.23 each. In other words, the speculator believes FB will move lower through next Friday's close -- a time frame that encompasses the firm's earnings report the evening of Wednesday, April 27 -- but maintain its foothold atop the century mark. While the sold puts more than offset the cost of the long puts, the trader has set himself up for potentially severe losses on a sharp move down into double-digit territory -- as the majority of the short puts are naked.

While the aforementioned spread involves puts, calls are still more popular overall. So far, 145,000 FB calls are on the tape, compared to just 88,000 puts. This call-tilted pattern isn't restricted to today, either. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 0.59, which ranks in the low 29th annual percentile -- with calls nearly doubling puts among options expiring in the next three months.

Technically speaking, Facebook Inc (NASDAQ:FB) has been trending higher since its mid-January lows just south of $90. More recently, the tech stock has been consolidating atop its 50-day moving average, which has been a historical level of support. Should FB take another bounce of this trendline, additional bullish brokerage notes could result.

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