FB Closes at a Record High

While the market waited for NFP numbers to come out on Friday, the Fed declared the subzero temperatures was a drag on the economy.  Unless you were selling de-icer or coffee during February, they were probably right.  A little milestone kicked in today, in case you were not watching; FB closed at an all-time record (FB, $71.57, up $2.77), just shy of the intra-day high.  Last year folks were wondering if this was the worst IPO in history, and this year they might be wondering when FB gets to $100.

I am of the later camp, but of course I don’t know when it will get there.  Since business on this scale is relatively new, except for Coke or Oil, there is a lot of potential.  And that is where we are now, a stock with a lot of potential, but a pretty lofty price.


What is not expensive is the near term IV.  A trade idea we have been messing around with in our Pro Group is the reverse diagonal when there is some decent skew.  It has been a nice trade in the stocks that show some realized volatility.  Traders can buy a FB March 72.5 strike call and sell an FB Apr 77.5 call for  2 point vol credit.  That ain’t too shabby.  It is also an ultra-cheap way to get long some deltas, and a big move should generate some reversion in the trade’s favor.  I think the gamma is kind of stuck in the broader market for now, but it’s not so in the individual names.

The Trade

For traders with Portfolio Margin, this is a good use of it.  If no Portfolio Margin, you will have to work a bit to sell more spreads and it will be commission intensive (editors note: and Margin intensive if Portfolio Margining not allowed.  Check with your broker for their requirements).  Buy March gamma with a few weeks to go and sell the April upside vega for even or better, but try for a volatility credit.  Give yourself a one week ride and if nothing happens, exit. Should be small dollars for theta and if moving the right way, keep it on.  Andrew on twitter @optionvol