Facebook (FB) is no stranger to the market, and the stock has been making new highs recently. With the equity closing at $44.75 (as of 9/12/13) you can see how price has done nothing but go up since the company posted better-than-expected earnings in late-July. I have (featured below) a daily chart of the equity.
One trader made a huge bet against the stock on one of the option exchanges. Courtesy of Trade Alert, I have the single top trade that was made in the options market yesterday, 9/12/13.
It appears that the trader made a $4,00,000 bet against the equity–the trade pays some huge profits if the equity plunges all the way to the $30 level. The company is expected to report earnings in late-October.
As far as the breakdown of the trade, the January, 2014 45-strike puts were purchased for $4.37 (this is an at-the-money option) while the January, 2014 30-strike puts were sold for $0.34. This resulted in a net debit of $4.03 to the trader’s account (4.37 less .34). The trader paid $4.03 for each spread trade initiated–but did so 10,000 times! At $403 a contract, times the 10,000 contracts, this is a $4,030,000 trade. Certainly a lot is at stake.
Max profits are achieved at the 30-strike. FB will have to dive all the way to $30 by January, 18, 2014 (the day these options expire). That is a downside move of ~33% which is certainly not a small move–but, as mentioned, the trader stands to take in some major gains. If FB does indeed plummet 33%, then they will take in $15 for the 45-strike puts, less the initial premium outlay of $4.03. This could result in net gains of $10.97 per trade. Multiply this by 10,000 and they could bank $10.97 million dollars.
It’s always fun to watch the options market and pay attention to some of the large bets that take place everyday. In only a few months, we’ll see if this trade was indeed “smart” money or just “dumb” money after all.
Good luck out there.