Options aren't liking Facebook

Momentum stocks took all the punches Monday with biotech especially and social media stocks taking a thumping. In short, last year’s winners are falling hardest as investors run scared. However, as we look at the pattern of investor interest expressed through options trading, there are few signs that derivative traders are prepared to throw in the towel. Take Facebook options (Ticker: FB) for example, whose shares peaked March 11th at $72.59. On Monday its shares reached as low as $63.36. We examined April and June options open interest to measure whether investors were turning more bearish as shares in Facebook started to lose momentum. The outcome on both actively traded months was the same. Investors appeared to be adding call options on the decline while they are hunkering down by positioning defensively in the April expiration.

In the June expiry, open interest fell to 207,000 contracts a net change of just 800 contracts as market fortunes favored the bears over the two week period. The biggest change in open interest was a decline of 37,200 calls at the $65.00 strike. And while this could be one substantial investor taking money off the table, investors overall added 40,000 out-of-the-money call options during the same time period. Still the number of outstanding Facebook calls today expiring in June is 2.5-times the size of open put positions. As optimists continued buying call options, bearish posturing increased by 10,600 in the June series during the period. Overall open interest at strikes between $50 and $80 today stands at 83,800 contracts.  

The following charts display April call option open interest, which currently stands at 208,800 contracts having increased by 13,100 in the last two weeks. The pattern of growing appetite for call options in this month is similar to the picture described above for the June expiration. That number would have been larger had it not been for investors closing down 22,300 calls placed at the $75 strike price.


    

Facebook options retain bullish bias


 

April put open interest

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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