With Facebook shares down $0.49 to $49.74, a hefty trade printed in the January 2015 options on the stock. According to a source on the exchange floor, paper sold 44,500 January 55 calls and bought 44,500 January 47 puts. $0.35 was paid for this Jan 47 - 55 bearish risk-reversal. The combo traded 64,000X on the day and today's open interest numbers confirm that a new position was opened.
On the surface, the hefty trade in Facebook might seem like an outright bearish play, as the investor was selling upside calls on the stock to buy downside puts. However, the options are also tied to stock (4 million shares also traded along with the risk-reversal). 64,000 contracts controls 6.4 million shares. So it seems possible that the trades are, not an outright bearish bet, but probably a defensive "collar" or hedging strategy against FB shares through 2015. When tied to (100 shares of) stock, a collar is a bullish rather than a bearish strategy. It is similar to a covered call or buy-write, but the investor is also buying puts to hedge the stock position. The calls help finance the put protection. The risk to the downside is limited to the put strike price, but the upside potential is also capped due to the fact that shares will be sold (called away) if the stock is trading above the call option strike through the expiration.
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