Facebook shares are WhatsApp

Shares in Facebook Inc.(NASDAQ:FB), which fell during aftermarket trading on Wednesday following an announcement by the company that it has agreed to buy mobile messaging startup WhatsApp Inc. for $4 billion in cash, $12 billion in stock and $3 billion in restricted shares, staged a midday comeback on Thursday. The turnaround in the price of the underlying appears to have sent options traders scrambling and volume in FB options to roughly 200% of the stock’s average daily reading before 3:00 p.m. EST.

Shares in Facebook declined as much as 3.4% during morning trading to touch down at an intraday low of $65.72 just after 10:00 a.m. EST, bounced off that level and haven’t looked back. The shares are up nearly 2.0% at $69.40 as of the time of this writing. Based upon the turnaround in the price of the underlying, one might expect less volatility to accompany the relief rally in Facebook’s shares, but the opposite appears to be happening. The closing reading of options implied volatility midweek of 34.8% has jumped to 38.3% today (+10%) despite the near 2% gain for the stock.

Average daily options volume on Facebook is an impressive 344,000 contracts, but overall volume in options on the social media giant today has topped 675,000 contracts with roughly 70 minutes until the closing bell sounds. The most traded contracts on FB by volume are the regular March $75 and $85 calls, with upwards of 60,000 options changing hands in each and well in excess of open interest.

The March $75 calls traded for an average of $0.84 today while the March $85 calls traded at an average premium of 23¢ per contract. The sharp rally in the price of Facebook’s shares since the bulk of the volume printed has driven premiums on these calls up to $1.15 and 29¢ each, respectively as of 2:50 p.m. EST. Much of the volume at both strikes appears to have been purchased earlier in the day at premiums below current levels; as such, it seems likely that some traders positioning for further upside in the stock price by March expiration are generating quicker than anticipated gains on this view.

 

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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