Unpredictable Volatile Debut for Facebook Options


Unpredictable Volatile Debut for Facebook Options

Investors looking to cash in on the recently listed internet social giant, FB can only hope that the debut of its options go well; unlike its debut, on the stock exchange.

Facebook options will be up for grabs, and it is expected that everything will go smoothly for investors looking to make some cash off the internet giant.

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Stock calls, and puts are expected to be quite popular, but there are fears of volatility, and the options price.

Options for Facebook Inc (NASDAQ:FB) will be up for grabs on the United States options exchanges on May 29. However, the options will be listed on the exchange by BATS Options Exchange on May 30, since it will be keeping in line with listing options a day after other exchanges have done the same thing.

During Facebook’s first day of trading, there was a lot of problems that surrounded the IPO, with technical glitches from NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) marring trading, and there was also complains that too many shares had been sold. In fact, the stock after a week had dropped to $31.47, around 17% from its IPO share price of $38.

However, the same thing is not expected during the options offering. Facebook’s valuation is still high, with the price to earnings ratio put at 56, but its stock is not expected to stay stable. Premiums, which are the price that are paid for options, need to reflect the situation stocks are currently in, and so they will be hard to peg down.

Reuters says that with the value of Facebook still unknown, then its real earning potential is also unknown and this means that during the first day of trading, the market may be filled by traders looking to make a quick turn around.

In Facebook’s options debut, investors and traders will have the choice of either taking advantage of the volatility of shares, by combining options and stocks, or they may hedge against the options on offer.

Unlike the IPO, where traders and investors had inklings as to what the share price may be, the options market does not accord this choice. Therefore, the volatility of the shares means that the options price will not be unknown until initial trading has taken place.

So, figuring out the value of the options is tricky, since the markets have to first open up, so that market makers can check the demand and supply to the price risk, and if demand for the options is high, then the price of the options will increase.

According to Reuters, Facebook will have an implied volatility of around 65 to 85% in the first 30 days of trading. This is based on volatility readings of internet firms like Yelp, Groupon, LinkedIn and Pandora from the first day of trading when their options opened, as well as the options and stocks volume that they have.

Currently, Facebook is valued at $85 billion, based on their share price of $31.23. Shares for this internet giant have been falling ever since they were first offered to the public on May 18, and reached a high of $42.05.

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