Options Flow Suggests Bullish Activity in Shares of Facebook
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A call spread buyer in Facebook on Friday was apparently taking advantage of 3% decline in shares and paid $1.08 for the Feb 55-57.5 call spread on a 60,000 by 45,000 ratio. The stock traded near $54.85 and the investor was buying 45,000 February 55 calls on FB for $3.70 and selling 60,000 February 57.5 calls for $2.62. Today's open interest numbers confirm that both legs of the spread were opening. The massive ratio spread in FB is a rather bold play. The cash outlay is nearly $5 million and the options will expire worthless in less than four weeks if shares hold below $55. The potential payoff is a rather hefty $11.25 million if shares rally and settle at $57.5 (+6.4%) at the February expiration.
The timing of the spread is also noteworthy because Facebook is due to report earnings this week and the stock is sometimes a big earnings mover. For instance, shares were up nearly 30% on July 25, 2013 when the company reported two quarters ago. The average daily move over the six quarters since the company has started releasing results is 11.6%. Another big move might be expected this time around, as implied volatility in the Weekly 1/31 options on the stock is near 134%, compared to 62% for the February options. The current implied volatility skew suggests a possible (one Sigma) post-earnings move of between $45.55 and $64.25 per share, or about +/-17%, for Facebook Thursday after the company reports Wednesday afternoon. OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
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