Data Management

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Phil Albinus
Phil Albinus
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Betting on a Further Facebook Fall

The options markets do not have high hopes for the social media giant. Next stop: $10 a Share.

The paparazzi photos of Mark Zuckerberg and his new bride on their honeymoon have not been particularly bubbly. Sure, who wants the paps shooting your every move and ATM visit while you're starting out with the love of your life as man and wife? If that weren't enough, it can't be fun to tour Europe while back home everyone is debating whether the best term to describe your company's IPO is 'terrible' or 'a debacle.'

According to the Wall Street Journal, the investment community doesn't have high hopes for the faltering Facebook. In fact, they're betting that it goes down to $10 a share. Let's look at some number in the article:

The Menlo Park, Calif., company is now valued at $79 billion, compared with $104 billion at the time of its IPO. Chief Executive and co-founder Mark Zuckerberg has seen the value of his stake sliced to about $14.5 billion from $19.1 billion.

To be sure, these are decent numbers for any company, especially one that might still be considered a start-up going through some growing pains, but investors were expecting a rocket when the IPO took off two weeks ago. And now the options markets are putting on the brakes:

In order to begin listing options on a company, exchanges must first propose the terms of the options and file for approval with Options Clearing Corp., an industry clearinghouse. While it first approved the listing of options with prices as low as $16, one exchange later applied to change that low to $1. When one exchange enacted the change, the others followed.

[snip]

The largest option trades bet that Facebook shares would continue to fall. These trades used options known as "puts" to wager on Facebook slipping to $25 a share by mid-July. Puts are contracts that give the buyer the right to sell stock later for a set price. These particular bets maximize their profit if the stock trades at $25.

As the article notes there are investors who believe that the shares for Facebook could hit $65 in January 2014. That's a nice vote of confidence but one wonders how hedge funds and prop shops will view the stock in the months to come.

Stay tuned.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
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