This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Massive Facebook Options Trade Prints Ahead of Earnings

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Facebook (FB) will be in focus after the closing bell. The social media giant is due to release a quarterly profit report and analysts expect the company to post $0.19 per share for the quarter, up from $0.12 a year ago. The stock trades for $49.40, well off the highs of $54.84 seen a couple of weeks ago, but also 86.3% above the levels seen on July 24 before the stock gapped 29% higher on second quarter earnings. Meanwhile, FB options saw interesting activity -- as one player opened a massive bearish risk-reversal on the stock Tuesday afternoon.

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

Henry can be followed on Twitter at

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.

At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Top Rated Stocks Top Rated Funds Top Rated ETFs