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OptionSIZZLE is created to help you better understand and become more familiar with options and what the professional traders are doing everyday in the market and provide effective options trading strategies to allow you to trade better and trade smarter. We have found over the years some of the... More
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  • How Money Is Made With Facebook Stock Options 3 comments
    Nov 13, 2012 3:09 PM | about stocks: FB

    This post came from my blog at www.OptionSIZZLE.com and was created a few months ago. I wanted to share my past material with the SeekingAlpha community to gain a better understanding on how I approach the market.

    ------------------------

    As if most weren't already too emotionally connected to Facebook, many are now financially connected with the companies recent IPO. Investors were hosed by the media when it went public on May 18th and bought shares because they were sucked into the hype.

    I found it very odd when I saw status updates of friends on my Facebook friend feed who have never purchased or sold a stock before, talking about how they just purchased shares.

    I could write a full article on the issues Facebook has a company and how it still is overvalued. The reason for the article is to highlight why having an edge in investing or trading is critical to your success.

    What I have found to be my edge in trading is following where the money is going in the options market. To me this is the most real time indicator out there because the transparency that options offer. What will typically happen in the options market is that informed traders will position themselves ahead of a move in the underlying stock because of the leverage stock options offer.

    I refer to this as unusual option activity. I find the media to provide a lot of noise and become very distracting. For instance, the first week when Facebook stock options became available to trade I spotted put buying outpace calls. This was an indication of prices likely to move lower with buyers of puts only able to profit on a move lower. In the coming days prices of Facebook continued lower.

    No one in the media was talking about that activity or gave investors a heads up on that action. Every Friday I run a live chat room part of the options trading service. Last Friday I spotted some unusual option call buying in option contracts that expired that day. I didn't pay much attention because of the recent put activity I saw and had my eyes on other trades.

    Prices of Facebook began to move higher in the morning and those early calls were up 200% pretty quick before seeing prices come back down. I have found stocks that move like that tend to have several moves like that after.

    This leads into today's chat room session.

    (click to enlarge)

    Early in the morning I saw blocks of call contracts in the June $29 strike trade with what looked like buyers. Not too long after that prices moved higher and those calls were up 100%.

    Just like last week the prices of those call options dropped down pretty quickly. However, I started to see more call buyers coming in a little later.

    (click to enlarge)

    With the market strong and the call activity increasing in that strike. I felt like prices could make a run through $29.

    (click to enlarge)

    After the lunch time grind, prices of those Facebook stock options started to ramp back up again and I was able to sell my calls that I picked up at 15 cents per contract earlier at 30 cents per contract for a 100% gainer.

    However, I left a lot of money on the table with those same calls hitting $1.05 into the close of today's session.

    My point of the article to show you that following where the money is going is a legitimate edge at making money in the stock market.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (3)
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  • idkmybffjill
    , contributor
    Comments (1560) | Send Message
     
    Wait....so you think FB will hit $29 again? Interesting article, but I was a little confused.
    13 Nov 2012, 01:20 PM Reply Like
  • OptionSIZZLE
    , contributor
    Comments (8) | Send Message
     
    Author’s reply » Sorry, this was an older article that I was posting from my blog onto my instablog here on seeking alpha.
    13 Nov 2012, 01:57 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1560) | Send Message
     
    Ah okay. What are your thoughts on tomorrow (well technically, today since its past 12AM where I am lol) and the share lockup expiration? Did you see any unusual options volume today by chance?
    14 Nov 2012, 12:09 AM Reply Like
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