Traders are swarming Facebook shares, buying options to take advantage of the tech company’s volatile stock prices. Gunjan Banerji reports in The Wall Street Journal:
The tumble in Facebook Inc.’s FB -1.45% shares has triggered frenzied trading of the company’s options, including contracts that pay out if the stock falls more than 30% or regains most of its losses.
The social-media company’s shares rose 0.7%, to $169.39, Wednesday but have slumped 8.5% this week after reports that the data of up to 50 million users was transferred to an analytics firm tied to President Donald Trump’s campaign.
Options volume has remained elevated all week. On Tuesday, volume of Facebook options was the second busiest ever, according to data provider Trade Alert. And some investors appeared to be girding for a volatile move in the stock.
The risk inherent in company shares valued at such high multiples like those of Facebook, is vastly greater than those valued nearer to historical norms. Any misstep in a company’s management that causes a mean reversion for shares with such high multiples will rapidly wipe out investors’ gains.
Invest with caution.