Facebook Inc (FB) Options Heat Up After Citron Shorts the Stock

Citron Research's Andrew Left said he's shorting Facebook Inc (NASDAQ:FB)

Jun 13, 2016 at 11:41 AM
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While most social media stocks are trading higher today amid major M&A newsFacebook Inc (NASDAQ:FB) is moving in the other direction. FB was last seen 2% lower at $114.58, after Andrew Left of Citron Research said he's shorting the stock because the social media company is "losing an extensive amount of relevancy." Left gained notoriety for his famous short sale of embattled drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) last year. In the meantime, not only is FB stock volume running well above the norm, but options traders are also quickly taking sides. 

More specifically, FB options are trading at twice the average intraday pace, with volume landing in the 85th annual percentile. The most popular strike is the out-of-the-money June 118 call, where more than 11,000 contracts have traded. It looks as though there's a mix of fresh buying and selling taking place here, with some traders betting on FB reclaiming $118 before front-options expire this Friday night, and others expecting the stock to hold below this strike. 

As for put options, there's likely buy-to-open action taking place at the June 114 strike. These bears are hoping FB closes below the strike at week's end -- something that hasn't happened on a weekly basis since April 22.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) implies that FB options traders have grown bearish in recent weeks. For starters, the stock's 10-day put/call volume ratio of 0.62 across these exchanges outranks four-fifths of all readings from the past year. Plus, FB's Schaeffer's put/call open interest ratio (SOIR) of 0.71 ranks in the 92nd percentile of its annual range, meaning short-term options traders are way more put-skewed than normal. 

Elsewhere, it looks like others have followed Left's bearish lead. Short interest on FB jumped by 10.7% in the most recent reporting period, 

But how far could Facebook Inc (NASDAQ:FB) really fall in the near term? The stock's drop today was stopped short just above the $114 level, which correspond with FB's late-April highs. Plus, the shares' uptrending 80-day moving average is sitting just below current levels, and has been acting as stiff support most of the year. As such, a near-term bounce could spark an unwinding of the pessimism surrounding Facebook -- which could act as a boon for the stock, and help it add to its 42% year-over-year lead

Daily Chart of Facebook June 13

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