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.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
Henry can be followed on Twitter at twitter.com/OptionAlert
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV