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The Globe and Mail

Options buyers set up for sub-$30 Facebook


No-Data-Available, MAY 23/Reuters

There's a lot of action in put options of Facebook Inc. as buyers set up for the possibility that the stock slides into the $20s on a sustained basis.

The stock, which debuted just over a week ago at $38 (U.S.), just broke below $30 and there's plenty of action in the options market as traders bet on either a further slip below that level or a rebound.

The busiest option on Facebook on Tuesday morning was the June put with a strike price of $30, according to Bloomberg data. As the stock trades below $30, that option goes in the money.

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Buyers of the put have the right, but not the obligation, to sell Facebook stock to sellers of the put at $30 a share before the option expires in June. Puts can be a way of betting on a stock going down, or hedging holdings against that possibility.

Of the top 10 busiest options, seven were puts. June puts with strikes of $28 and $29 were active. July puts with a $25 strike were also popular. Overall, put volume outpaced call volume by a ratio of about seven to five in morning trading Tuesday.

Just three of the top 10 busiest Facebook options were calls. They give buyers the right, but not the obligation, to purchase Facebook stock at a set price before the option expires. June $34 and $32 calls were the most active, suggesting some traders believe the stock is set to bounce back.

A hat tip to Zero Hedge for pointing out the action.

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