The Options Insider

FB Implied Volatility Goes Kersplat. Now What?

by | Jan 16, 2013 | Trading & Analysis

We have spent a lot of time in this blog chronicling the movement in Facebook.? I think the stock has been a really good trader except of course for the $38 buyers on the IPO.? It feels like nobody wanted the stock at $19 either because all the initial investors were getting out.? Some did for sure as was reported today but by and large there is a big group of holders not quite ready to hit the bricks yet.? The lockup expiration dates have been the great buying opportunities of the year for this name.? I guess the point is that when things are telegraphed this well in advance they are generally not what they seem?

Take the ?big announcement? today coming from Facebook.? They came out with some search technology.? Ok that is great, but tell me when it goes mobile since that is what the market cares about.? Technology for the PC is so 1998.? Anyway it was the volatility bid up into the announcement that was interesting.? The two front months got up there for FB into the 70% range.

?011613Sebastian

Livevol (r)?www.livevol.com

Then the news came out and it really did not matter what it was.? Paper sold the stock and options and the kitchen sink.? By the end of the day the name was a full $1.5 lower than the highs of the day.? I guess the big Z thought this news was bigger than the earnings.? After all those numbers are just around the corner so why not announce this new technology goody at the same time?? This might be a case were the market does not quite get it yet.? This would not be the first time.? All I know is that the implied volatility is getting back into the 40?s and that is where I like to buy it for shorter term trading.? The ATM straddle expiring Jan 25th is worth just the range we saw today and that is 10 days to go.? Maybe there is a trade there.

The Trade

If the IV gets into the low 40?s in the FB Jan 25 cycle it might be worth scooping a straddle or strangle or maybe just some long calls if the selloff disappointment from today picks up steam.? 40% implied volatility usually performs from the long side in FB.

I have positions in FB.