Shares of Facebook (FB) made a new all time closing high yesterday, and following through today, placing the stock up 42% on the year and resulting in a nearly $150 billion ytd market cap gain. There were a couple trades in the options market yesterday that suggest at least one trader is playing for higher highs between now and next Friday’s close (which will include next Wednesday’s Q2 report) and much higher highs by mid-September.
First, shortly after noon yesterday, when FB was trading $161.64 a trader bought to open 10,000 of the July 28th weekly 170 / 177.50 call spreads for 71 cents or $710,000 in premium. This trade breaks-even at $170.71, up 5.5% from the trading level, and offers profit potential of up to $6.79 between $170.71 and 177.50, or about 4.2% of the stock price at the time of the trade.
It’s worth noting that the implied movement between now and next Friday’s close in the options market is about 4.5% in either direction, which is rich to its one-day post earnings average move over the last 4 quarters of a tad below 2%.
That trade is fairly self-explanatory, likely an existing long looking to lever up into the print, placing a bet with a nearly 10x payout if the trader were to get the short term direction, the magnitude of the move and timing correct.
But the trade just described seems nearly inconsequential when compared to the massive print that went up shortly before 3pm yesterday when FB was trading $163.30. In this case the trader bought 25,000 of the Sept 175 calls for 2.42, or $6.05 million in premium, bought 25,000 Sept 180 calls for 1.50, or $3.75 million in premium ($9.8 million in premium total) and sold 50,000 of the Sept 200 calls at 32 cents, or $1.60 million in premium. This multi strike trade is contract neutral (50k x 50k) resulting in a net debit of $8.2 million in premium. If FB stock is below $175 on Sept expiration the trader will lose all of the $8.2 million in premium. As far as profit potential, consider this as two separate call spreads of 25,000 contracts each, the Sept 175/200 call spread purchased 25,000x for 2.10 that breaks-even at $177.10 and offers profits of up to $22.90, or $57.25 million and the Sept 180/200 call spread purchased 25,000x for $1.18, that breaks-even at $181.18 and offers profits of up to $18.82, or $47.05 million. If the stock is 200 or above on Sept expiration this trade would yield profits of $104.3 million!! That is some serious heat. Obviously both call spreads are pretty far out of the money right now. The trade is risking $8.2 million to break-even up about 10% from trading levels. But if correct and FB makes a run at $200 (up 22.5%), it offers a max potential payout of 12.5xin two months (on Sept expiration). That move would place the stock up 65% on the year.
As far as reading the charts to get a sense for just how far the recent breakout, well your guess is as good as mine. Maybe you “measured move” peeps can weigh in here. I see support in the mid to low $150s and obviously un-chartered territory above: