Anyone who wants a quick, real-world options trading education should log in to watch Facebook’s upcoming initial public offering of stock.
According to a new Barron’s post, puts and calls for the global social-networking site could go up by May 29. And the world’s largest options exchange, Chicago Board Options Exchange, has appointed the Susquehanna Investment Group to be the specialist for the contracts, the post says.
If you’re not sure what you’re watching for, here’s a little basic guidance from Barron’s:
“Anyone who sells puts positions themselves to buy the stock if the price declines below the put's strike price. Anyone who buys calls potentially benefits from Facebook's expected advance. Calls increase in value if the stock rises,” the post explains.
The Facebook offering pits two schools of thought against each other when it comes to options trading.
On the one hand, many investors see no limit to Facebook’s growth — and profit — potential. On the other, a number of Wall Street mainstreamers argue the company is overhyped and won’t be able to live up to anyone’s financial expectations.
That opens the door for widespread options trading, market watchers say, because the options market gives buyers the change to re-evaluate — or “unlike,” you could probably say — along the way.
“… Investors who have missed out on getting shares at the pre-IPO price, or who are not willing to chase shares higher once they are listed, will be able to pick and choose prices in the options market,” Barron’s says.
“Selling puts positions investors to buy Facebook stock if it declines below the put's strike price. The put trade does not guarantee investors will get the stock, but the put trade effectively lets investors place an order, at a below market price, to buy Facebook shares.”
Should be interesting — and educational — to see just how many friends Facebook really has.
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