Meta slide drives ‘insane’ options volume as some bet on bounce By Reuters

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A plunge within the shares of Fb (NASDAQ:) proprietor Meta Platforms Inc fueled a surge of choices buying and selling on Thursday, with some traders positioning for a fast rebound within the firm’s inventory.

With Meta shares down round 25%, over 1.4 million choices contracts on the corporate had modified fingers by 12:30 p.m. (1730 GMT).

That places the choices on observe to complete the day with about 2.5 million contracts traded, in contrast with the earlier report each day quantity of 1.8 million contracts on Aug. 7, 2020, in response to knowledge from choices analytics agency Commerce Alert.

“It is fairly insane,” mentioned Henry Schwartz, head of product intelligence at Cboe.

Meta shares plunged after the social media large late on Wednesday issued a dismal forecast, blaming Apple Inc (NASDAQ:)’s privateness adjustments and elevated competitors.

A lot of Thursday’s choices buying and selling was in weekly choices, with contracts set to run out on Friday making up about 40% of the buying and selling quantity, in response to Commerce Alert knowledge.

Name choices betting on Meta shares ending above $250 by Friday have been essentially the most closely traded Meta contracts on Thursday, with almost 50,000 choices traded.

“Volatility knowledge exhibits an curiosity in upside bets,” Schwartz mentioned.

Calls convey the correct to purchase shares at a set worth sooner or later, whereas places convey the correct to promote the shares.

Some merchants have been shopping for shares and promoting upside calls, Schwartz mentioned. Such a method would permit them to gather a premium from the sale of the decision whereas benefiting from a possible bounce within the inventory.

The sharp drop in Meta shares doubtless hurts market makers – sometimes massive banks or monetary establishments – who could have offered Meta choices straddles forward of the outcomes.

The straddle refers to an choices technique during which an investor holds a place in each a name and put choice with the identical strike worth and expiration date. The value of the straddle serves because the market’s anticipated transfer within the inventory.

“Market makers should have taken a giant loss on this one … this has bought to be painful,” mentioned Matt Amberson, principal at choices analytics agency ORATS.

The massive transfer additionally seems to have taken choices markets unexpectedly, accounting for a number of the large quantity, analysts mentioned.

Meta shares have been anticipated to maneuver solely about 4.8%, based mostly on the value of choices straddles forward of the outcomes, Amberson mentioned.

The Meta share drop, far in extra of its straddle pricing, additionally goes counter to current earnings-related inventory worth strikes, the place shares have usually tended to maneuver loads lower than choices have implied,

During the last three weeks, the common precise earnings transfer logged by the shares of firms that reported outcomes was solely about 85% of the common transfer anticipated by choices costs, an ORATS evaluation confirmed.