Option Trader Bets $1.5M On Facebook Despite Trump's Section 230 Threat

Facebook, Inc. FB shares gained 1% on Wednesday after President Donald Trump threatened to remove a key legal protection for social media companies.

Trump threatened to withhold military funding unless Section 230 of the National Defense Authorization Act (NDAA) is removed, but at least one large Facebook option trader isn't concerned about Trump’s claims.

The Facebook Trades: On Wednesday morning, Benzinga Pro subscribers received dozens of alerts related to unusually large Facebook option trades. Here are some of the largest:

• At 9:40 a.m. ET, a trader sold 240 Facebook call options with a $240 strike price expiring on Jan. 15. The contracts were sold near the bid price at $43.151 and represented a $1.03 million bearish bet.
• At 10:10 a.m. ET, a trader bought 429 Facebook call options with a $300 strike price expiring in January 2022. The contracts were purchased at the ask price of $37 and represented a $1.58 million bullish bet.
• At 12:01 p.m. ET, a trader bought 1,306 Facebook call options with a $320 strike price expiring on Jan. 15. The contracts were purchased near the ask price at $4.70 and represented a $613,820 bullish bet.

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 option trades, there’s certainly a possibility they could be an institutional hedge on a large position in Facebook stock.

Related Link: How To Read And Trade An Options Alert

Battle Over Section 230: In a tweet on Tuesday, Trump called Section 230 “a serious threat to our National Security & Election Integrity.”

“If the very dangerous & unfair Section 230 is not completely terminated as part of the National Defense Authorization Act (NDAA), I will be forced to unequivocally VETO the Bill when sent to the very beautiful Resolute desk,” Trump said.

Section 230 protects social media companies from liability over the content their users post. Trump and other Republican politicians have been very critical of Section 230, accusing Facebook and other platforms of censoring conservative content and hiding behind their legal protection.

Benzinga’s Take: It’s unclear what the bullish $1.58 million call buyer’s exact thesis on Facebook is, but the fact that the calls have expiration dates more than a year in the future suggests the buyer is making a fundamental bet against on Facebook’s business rather than a short-term bet on a technical bump or bullish near-term catalyst.

The break-even price on the January 2022 call options is $337, suggesting at least 16.7% upside for Facebook over the next year.