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Facebook Inc (FB) Options Trade, Call-Away Level Up At $91.35 Or A Buffer To The Downside: Dan Nathan

Risk management is one of the most difficult chores that traders have to face, but it has to be done just in case some unpleasant surprises show up. Facebook Inc (NASDAQ:FB)’s options don’t enjoy a high popularity, according to CNBC, but some interesting expectations about the company’s pricing future can be depicted from the buys and sells of the financial instruments, especially when investors try to hedge against risks.

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“The stock traded options about 70% of the average daily volume, which is really interesting, but shortly after the open there was this trade where it looked to be an overwrite where a long holder sold, looking out to October 2015 expiration, 6,000 of the October $82.5 calls at $8.85,” informed Dan Nathan.

Obviously, it will be time consuming to see how the trader’s deal goes through at the contracts’ expiry date as we have to wait a whole year. Nevertheless, it can be sensed that he, she or it (if it’s an institution) wants to hedge the risk of big fluctuations in Facebook Inc (NASDAQ:FB)’s pricing. The earnings from the current sale will allow the holder of company’s share to wait for a turnaround in a less pleasant future down to about $69 (current price around $77.15 minus the contract price of $8.85). It also employs the assumption that Facebook Inc (NASDAQ:FB) is not going to gain $23 in the course of one year.

“It’s probably a yield enhancement trade and what they’re doing is they’re basically creating a call away level up at $91.35 on October expiration or a buffer to the downside down to about $69. So $69 to $91.35, that call sell of $8.85 of the October 2015 $82.5 calls creates this massive buffer,” stated Dan Nathan.

Facebook Inc (NASDAQ:FB)’s share price jumped some 40% in the course of the year so it’s quite possible for the company to bypass the $91.35 spot in the following 12 months, but there’s another detail to take into consideration. The fact that Facebook Inc (NASDAQ:FB) paid for the WhatsApp acquisition with a stake in the company might cause a big sell-off of the company at a certain point in the future. The above trade aims at hedging also against this possibility.

Disclosure: none

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