Large Facebook Option Traders Dumping Calls Following Difficult Week

Facebook, Inc. FB shares are now up 11% year to date.

On Friday, the largest of a series of Facebook option trades were more bearish than bullish, suggesting smart money is taking profits on Facebook’s recent run.

The Trades

On Friday, Benzinga Pro subscribers received 11 option alerts related to unusually large trades of Facebook options. Here are a handful of the biggest:

• At 9:48 a.m., a trader sold 13,075 Facebook call options with a $230 strike price expiring in June 2021 at the bid price of $35.25. The trade represented a $46 million bearish bet.
• At 9:54 a.m., a trader bought 500 Facebook call options with a $230 strike price expiring in June 2021 at the ask price of $35.25. The trade represented a $1.76 million bullish bet.
• At 10:11 a.m., a trader sold 494 Facebook call options with a $260 strike price expiring on Aug. 21 at the bid price of $5.80. The trade represented a $286,520 bearish bet.
• At 11:20 a.m., a trader bought 560 Facebook put options with a $222.50 strike price expiring on June 19 near the ask price at $4.811. The trade represented a $269,416 million bearish bet.

Of the 11 total large Facebook option trades on Friday morning, three were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The other eight represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish.

Three out of the four largest trades of the morning were bearish.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Facebook trades, it’s possible that at least some of the trades were institutions hedging against large positions in Facebook stock.

Facebook Running Out Of Steam?

Despite a seemingly never-ending chain of negative headlines related to platform abuse, mishandling of data, non-competitive practices, content censorship and other issues, Facebook has consistently delivered strong top- and bottom-line growth in recent quarters. However, it seems the majority of Friday’s large option traders feel Facebook shares may have finally run out of steam.

Unlike many other stocks that have been devastated by the economic shutdown, social media companies have witnessed a surge in user engagement even as advertising rates plummeted. In May, Facebook shares hit new all-time highs after the company added a new virtual mall feature called Shops, which will make it easier for businesses to set up online stores integrated into both the Facebook and Instagram platforms.

On Wednesday, Bank of America said Facebook should benefit in the long-term from under-valued and under-monetized assets such as Messenger, Marketplaces and Watch.

Benzinga’s Take

Given many of the trades on Friday, including the huge $46 million trade, represented call sales, traders may simply be taking profits on bug winning trades following Facebook’s 34% gain in the past three months.

Long-term investors should continue to monitor the option market to see if bearish Facebook trading continues in the weeks ahead.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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