Time to Buy Put Options on Facebook Inc (FB)?

Facebook Inc (FB) just flashed a death cross, raising serious questions about the future of the social media stock

Jan 6, 2017 at 12:18 PM
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Facebook Inc (NASDAQ:FB) may be seeing bullish options activity today, but on the charts, the social media stock just saw a death cross. Specifically, FB's 50-day moving average crossed below its 200-day trendline, signaling potential losses on the horizon. On top of that -- and also per the chart below -- the $122-$124 area has acted as a stubborn layer of resistance in recent months.

fb daily jan 6

That hasn't stopped options traders from charting a bullish course. Today, calls are being exchanged at nearly triple the usual intraday rate, and they more than double the number of puts on the tape. Most active is the weekly 1/6 122-strike call, where the International Securities Exchange (ISE) confirms some buy-to-open activity. In other words, eleventh-hour speculators are counting on extended gains for FB through day's end, when the series expires.

That said, now is actually a great time to place bearish bets on Facebook shares. The stock's 30-day at-the-money implied volatility skew is 10%, which ranks in the low 6th percentile of its annual range. In simpler terms, expectations are currently very low for short-term downside movement.

Bearish speculators could score big if sentiment begins to swing on the Street. Even though FB is flashing some warning signs on the charts, and has underperformed the broader S&P 500 Index (SPX) by nearly 12 percentage points in the past three months, optimism is extremely high. For example, 29 of 32 analysts rate the stock a "buy" or better, with not a single "sell" opinion on the books.

Echoing this, short interest has fallen off a cliff. In fact, only 1.1% of Facebook Inc's (NASDAQ:FB) float is sold short. From a contrarian perspective, a rejuvenation among these bearish traders, and/or a round of downgrades, could hit the social media stock hard.

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