You know this thumb. You go on Facebook every single day. And if you tell me you don’t you are lying. Please don’t lie to me. It isn’t very nice.
While the world spends most of its time on Facebook at work, fortunate traders and investors are spending that time trading Facebook stock and FB options.
If we had to choose between trading stock or trading options, we would choose options every day of the week. They provide us the ability to define our probabilities and also allow us to use far less capital than compared to holding stock. For the rest of this article, we are going to talk to you about FB options.
Facebook is one of the FANG stocks that has been a market leader and a growth investors dream since IPO’ing back in 2012. The social media network sees over one billion unique users a month and makes money hand over first in their advertising platform.
Facebook trades about 20 million shares a day and is currently sitting right at an all-time high. Congrats to anyone who has been shareholders (full disclosure, I bought Facebook at $19.55 a share and sold it for $20.01 :)).
While we can marvel at the stock price, we ALWAYS prefer to trade options over stock. Fortunately for us, FB options are some of the best in the world. We will spend the rest of this article speaking about them.
How Amazing Are FB Options
They are very amazing. Facebook is one of the most institutionally owned names in the world as it is seen as the number one growth stock in the world right now with Amazon. But what exactly makes them so good? Let’s dig in.
We can see Facebook options have incredible liquidity with over 100,000 options contracts traded today. One of the things we like to do is find the sheer notional value of the options market for a day in a stock. The way we do that is simple. We take the current price of the stock ($139.32) and multiply that by 100 ($13932) because every option contract is worth 100 shares of stock. We then take that number and multiply it by the amount of contracts traded in a day (140,817) and we come up with an astounding $1,961,862,444. Wow.
With that much competition to trade options, there must be a lot of available expirations cycles. We should expect that the demand is so high that Facebook has monthly and weekly options to satisfy its customers.
Just as we suspected. Weekly and monthly options because there is the demand for it to the tune of almost two billion dollars a day. FB options are a gift from the Gods come earnings time as well.
If there is this much demand for options contracts, I am sure the markets are no more than one or two pennies wide during the trading day.
YUP. We see pennies at the most. Competitions for contracts are very high during the trading day. Since markets are so good (small bid/ask spread) and there is so much institutional involvement, the open interest numbers must be very high too. We expect to see open interest in the thousands.
Check. And these numbers don’t reflect a lot of moms and pops. No, they reflect institutional interest. Look at some of the largest trades of the day today.
In the largest trade of the day today, the amount of money spent on the trade was $626,430 in order to control the synthetic equivalent of 399,000 shares of stock or the notional value of $55,588,680. Again, this is another reason why we prefer options to stock.
Fortunately, Facebook is not yet a mega cap stock. This allows us to make any type of covered or uncovered options trade. For covered positions we can make any type of spread trade we would like which can be filled at mid price. For uncovered trades, we only need to use 20% of the strike price in margin requirements. For example, if we sold a $130 put right now in Facebook for $0.54, we would only have to put up $2,600 in buying power. That is a low price to pay for such a n incredible product that we can do whatever we want with.
Wrapping up FB Options
Again, the benefits of such amazing FB options are the following:
- Insane liquidity
- Big time volume
- Institutional interest
- Tight bid/ask spreads
- Multiple expiration cycles
Facebook needs to be immediately added to your watch list because when the opportunity arises in Facebook, we can act as quickly as we would like, with the size that we would like, at fair market value. This is the type of liquidity that we dream of as options traders. Once you experience trading options on Facebook, you will never trade an illiquid product ever again.