Facebook Options Get Thumbs Up -- WSJ
March 22 2018 - 3:02AM
Dow Jones News
By Gunjan Banerji
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 22, 2018).
The tumble in Facebook Inc.'s shares has triggered frenzied
trading of the company's options, including contracts that pay out
if the stock falls more than 30% or regains most of its losses.
The social-media company's shares rose 0.7%, to $169.39,
Wednesday but have slumped 8.5% this week after reports that the
data of up to 50 million users was transferred to an analytics firm
tied to President Donald Trump's campaign.
Options volume has remained elevated all week. On Tuesday,
volume of Facebook options was the second busiest ever, according
to data provider Trade Alert. And some investors appeared to be
girding for a volatile move in the stock.
Among the most popular options changing hands Tuesday were
bearish put contracts expiring in April. Puts give holders the
right, but not the obligation, to sell the shares at a certain
price. Traders can tap options to make bets on which direction they
think a stock will move or to hedge portfolios.
The "strike prices" for the options -- the levels at which the
contracts can be exercised -- were $115 and $120. That means
Facebook shares would have to plunge 32% and 29%, respectively,
from where they closed Wednesday for the options to pay out.
Facebook's shares haven't traded at those levels since about
December 2016.
"They're most likely purchasing puts to protect themselves on
the downside," said Mary Ryan, a Chicago-based senior options
strategist at E*Trade Financial Corp. But some options investors
may be positioning for a reversal, she said.
The news about Facebook sent its shares on their worst two-day
drop in more than two years, a sharp turnaround for the company,
which has vastly outperformed the S&P 500 in recent years.
Also popular among Facebook options were bullish call options
that pay out if the stock bounces to above $180, near where the
stock was trading before this week, Trade Alert data show. A call
option gives the holder the right to buy the shares at a set
price.
JPMorgan Chase & Co. analysts recommended a bullish options
trade in a note Wednesday. "Clarity on the Cambridge issue and
Facebook's willingness to self-regulate are likely near-term
catalysts that may reduce investor fears, stabilize the stock and
position it for a recovery into first-quarter results," JPMorgan
analysts wrote.
Facebook options tend to be heavily traded, landing it on a list
of the top 10 most-active options in 2017, alongside contracts on
the S&P 500 and Apple Inc., according to a January report from
research firm Tabb Group.
"I would expect the activity to stay elevated for the next few
weeks with bouts of intraday volatility," JJ Kinahan, chief market
strategist at TD Ameritrade Holding Corp., said in an email.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
March 22, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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