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Facebook Call Buyer: Let it Ride

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Facebook (FB) shares are down $0.36 to $54.50 Wednesday morning after notching new record highs of $55.18 intraday Tuesday. The stock, which spent the first six months of 2013 drifting lower in a range, has now exploded 108.5% higher since late-July and is up 21.3% in less than a month. While the surge might seem a bit excessive, one big player in the options market made a decisive bet yesterday that this bull has more room to run.

A massive call spread traded on Facebook Tuesday morning. With the stock notching new record levels north of $55 per share, the investor sold 40,800 January 50 calls at $5.65 per contract and bought 51,600 February 55 calls for $4.60 apiece. The activity in Feb 55s was opening. In fact, open interest at that strike increased by 61,962 contracts and is now 73,327, now the eighth largest block of open interest in Facebook options today.

The spread Tuesday also appears to have closed a position in January 50 calls that was opened last week. On December 10, when shares of social media company near $50, an investor bought 40,000 January 50 calls on FB for $2.40 per contract. The stock rose 10% and the investor monetized the gain yesterday for a tidy profit of $3.25 per contract or, on 40,000 contracts, $13 million.

It doesn't end there because, when the January 50 calls were opened last week, the same player also closed a position in 26,500 FB January 45 calls at $5.60 per contract. Those calls, in turn, were apparently bought-to-open on November 26 for $3.15. The profit on the transaction: $6.5 million.

Facebook has been rallying and saw a boost last week on news the company will be added to the S&P 500. One big player in the options market seems to have enjoyed the ride and has monetized nearly $20 million in gains so far. Now, the savvy investor is opening in the Feb 55 calls with a hefty investment of $23.7 million. So while many wonder if Facebook share level is a bit extended after the recent surge, such a large investment in upside calls is hard to ignore. In this case it seems pretty clear that one trader made a nice gain on the move higher and is willing to 'let it ride' into 2014

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

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