In the off chance Facebook (FB) shares didn't give you enough bang-for-the-buck in terms of risk, you can now play Facebook via the options market. To help ponder the idea of trading options on a stock that does nothing but fall Breakout welcomed the OptionMonster himself, Jon Najarian.
Like most other market watchers, Najarian is baffled by CEO Mark Zuckerberg and his company going radio-silent after the IPO debacle. The stock has lost 1/3 its value in 10 trading days and Facebook has yet to issue a public statement of any sort, which actually may be for the best.
In that light, FB options are relatively cheap at a volatility of 60. By comparison Facebooks options' vol is about 3x that of Apple (AAPL) and 2x Google (GOOG). Another stock with options volatility near that of FB is Research in Motion (RIMM); a fact certain to irritate fans of either stock.
Whatever the vol, Najarian says $25 strike puts can be had for a whopping $2, meaning they would have no intrinsic value until FB dropped under $23, a full $5 below where the stock was trading at the time of our conversation. "Not a lot of people are betting on the upside right now for Facebook," he deadpans.
There is a bullish case to be made for the shares and Najarian is willing to make it, albeit with atypical caution. With huge trading volumes as the stock fell, outsized demand for puts and other signs of longs getting flushed out "maybe you're getting to some sort of place where finally it's oversold."
If and when such a bounce happens, Najarian says Facebook could make its way back into the $30s by July options expiration. Assuming, of course, the company deigns to grace the market with some sort of comment regarding a revenue plan for mobile and Mr. Zuckerberg returns to the office.
It's not much for the bulls to cling to but given the way FB has traded in its brief history anyone still long should welcome anyone willing to stick their neck out on behalf of the shares.
Do you think Facebook (FB) will end this year above or below its IPO price of $38 a share? Please answer our poll question below and visit us on Facebook!
- Investment & Company Information
- Mark Zuckerberg