Options Trading News

May 24, 2013  Fri 12:20 PM CT

Facebook is down to its lowest price since November, and buyers are taking a shot on the long side.

optionMONSTER's Heat Seeker monitoring program detected the purchase of some 6,000 July 24 calls, most of which priced for $1.60. About 4,000 of them were matched against the sale of July 27 calls or $0.43.

Owning calls lock in the price where investors can buy the social-media stock, while selling them creates a commitment to sell shares if they climb to a certain level. Combining the two controls the difference between the two prices and is known as a vertical spread. (See our Education section)

In the case of today's activity, the investor controls the $3 spread for $1.17. That will translate into profit of 156 percent if the stock closes at or above $27 on expiration. Traders are also buying the July 30 calls for $0.10, but volume is below open interest in those.

FB is down 2.43 percent to $24.45 in afternoon trading and has lost 12 percent of its value since the start of May. It had initially rallied after quarterly revenue beat estimates, but then quickly rolled over.

Overall option volume is double its daily average so far today, with calls outnumbering puts by nearly 3 to 1.
Share this article with your friends


Premium Services

Archived Webinar

Education & Strategy

The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

View more education articles »