With Facebook’s earning due out on Wednesday, there has been a significant amount of activity on the market. One trader in particular, seems to have a dim view of Facebook’s financial future and has bought 30,000 8 month put options.
The trade, which is one of the biggest Facebook Inc. (NASDAQ:FB) trades this year, cost $8.3 million dollars and gives the trader the option of Facebook shares at $45 by January 2015. This could be a very profitable trade if the value of the stock declines by 25% between now and January next year as it is currently trading at $60.
There could be another reason for the trade, however, if the trader is sitting on a large block of Facebook stock since it was first offered then the transaction could be a hedge to protect against losses. Facebook stock has skyrocketed since it was first issued and recently the stock has been far more volatile than usual. Putting this trade in place would protect profits in the case that the current volatility widens, or there is an outright decline.
Facebook stock has been performing well this year with it reaching an all time high in March before sliding back 16%. Investors were very happy with the earnings report in January showing that Facebook’s mobile revenue had finally made up more than half of the total revenue. In general investors seem twitchy around the stock most likely due to the $19 billion dollars worth of acquisitions that Facebook has already made this year with the purchase of WhatsApp and Oculus. What impact they will have on the earnings report will be revealed after the closing bell tomorrow.
