Wasn’t Facebook just hard to borrow?

I spent a few minutes today looking at some other internet blogs about options.   Mark and I get links all the time, and I check them out when something looks good.  I am happy to pass this one along- http://www.optionstradingiq.com/top-10-option-trading-blogs/.  We made this guys top 10!  It is nice when someone notices what you do and takes the time to write about it.  Now that I have plugged myself, time to look at Facebook.

First off, when I buy juice (ATM or OTM options), I need to have a story behind the trade.  While I need the numbers, as in cheap implied volatility or very fast realized volatility, the story driving the numbers helps me tip the scales.  Facebook has a story.  Just recently, there was the lockup story when millions of shares were going to be dumped onto the market.  While a good chunk was no doubt sold by those lucky buggers getting in a .01 a share, it did make the stock tough to locate for awhile.  Two weeks before the earnings were not up to snuff, and four weeks before, the hype was dead, and on and on.  You get the picture by now.  It is very easy for the Social Network to get hot.  It is almost always in the news via its omnipresent nature.  Now the numbers:

 

Charts from Livevol ® (www.livevolpro.com)

The FB Aug31 Weeklys were trading for a 44% volatility on the close today.  That is a full 25 pts. lower than the 10 day realized and 30 points below the 20 day realized volatility.  That is darn cheap gamma.  The back month options are were trading in the high 70’s last week.  The Weeklys can easily fall hard in implied volatility, since the lion’s share of paper wants to sell them.  I think a 45% IV with 5 trading days to go in this name is a good purchase.  With the story this good maybe another 10 million share seller looms for a nice nasty drop or surprise pop might be just around the corner.

The trade

Buy the 19/20 strangle in the FB Aug 31 Weeklys.  For around .55 it should not be too hard for this trade to pay.  Give it at least two days of decay to see some results or look to exit for a small loss.  I hope you like that one.

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