Facebook Inc (FB) Option Trader Sees Record Highs By Next Week

One Facebook Inc (NASDAQ:FB) option trader may have initiated a call ratio spread in the weekly 10/28 series

Oct 19, 2016 at 2:52 PM
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Facebook Inc (NASDAQ:FB) is up 1.2% at $130.06 -- and within striking distance of its Sept. 7 all-time peak of $131.98 -- after the tech name unveiled a new food ordering feature, similar to that of GrubHub Inc (NYSE:GRUB). (Shares of GRUB, meanwhile, are lower at last check.) Against this backdrop, speculative traders are pouring into Facebook's options pits, with volume running at an accelerated clip -- and one call player making a bold bet on new record highs for FB stock.

Breaking down the numbers, around 209,000 FB options have traded so far -- roughly 1.5 times what is typically seen at this point in the day. Calls have more than doubled puts, with 141,000 of the former and 68,000 of the later on the tape at last check.

The most noteworthy trade occurred shortly before lunchtime, when it looks as if one speculator initiated a 2:1 call ratio spread in the weekly 10/28 series. Specifically, a block of 12,000 weekly 10/28 133-strike calls was possibly sold to open for $0.58 apiece at the same time a 6,000-contract lot of weekly 10/28 131-strike calls may have been bought to open for $1.28 each, resulting in an initial net debit of $0.12 per spread [($768,000 premium paid - $696,000 premium collected)/6,000 contracts)].

The spread strategist expects FB stock to settle right at $133 -- in record-high territory -- at next Friday's close, allowing them to pocket the maximum potential reward of $1.88 per spread (difference between the two strikes less the net debit). However, while risk is limited to the initial cash outlay on a move to the downside, a sharp move higher by FB stock could result in theoretically unlimited losses, due to the naked sold call.

From a wider sentiment perspective, it's been put buyers who have been more active than usual in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FB's 10-day put/call volume ratio of 0.75 ranks just 6 percentage points from a 52-week peak. Given Facebook Inc's (NASDAQ:FB) impressive run on the charts -- the stock is up 24% in 2016 -- some of this put buying could be a result of shareholders protecting paper profits against an unexpected slide.

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