Put Options on FB on 8/10/2012

Facebook (FB) operates as a social networking company worldwide. The company builds tools that enable users to connect, share, discover, and communicate with each other; enables developers to build social applications on Facebook or to integrate their Websites with Facebook; and offers products that enable advertisers and marketers to engage with its users.

The stock IPO was mishandled by the Nasdaq Stock Exchange causing shares to move much lower than anticipated. The firm reported earnings that disappointed investors. Since then, shares have formed a bearish "flag" formation. 

Fidelity Investments, an early investor in Facebook Inc. (FB), disclosed that 19 of its stock funds sold 1.7 million shares in June, the month that followed the social-networking company’s botched initial public offering.

Facebook has an usually short lock-up period with the free float now expected to increase by 55% after just 91 days (equates to $12 bn worth of stock at high-end of current IPO range). The lock period ends August 18th. 

Stockwinners is bearish on this name for the following reasons:

1. The expiration of lock up period will open door to sale of $12 bn worth of new shares
2. Shares have formed a bearish "FLAG" and are ready to break to the downside. They are condolidating in the formation.
3. Shares are up 47c to $21.48

TRADE: Buy 1 September $22 PUT (FB120922P00022000) FOR LESS THAN $2.00

Breakeven & Profit/Loss Analysis:

• Breakeven at $20.00 on Sept expiration
• Profit below $20 , $20 Max gain
• Losses btwn$20 to $22 up to $2.00 , max loss of $2.00 above $22

The pay off table is presented below:

Trade Buy 1 January $50.00 Call at $2.00 For a net debit of $2.00 Profit/Loss Analysis Breakeven at $52.00 Maximum profit is unbounded Maximum loss is ($200.00) at strike of $50.00 Closing Summary Sold 1 January $50.00 Call at $2.80

Position closed on 8/24/2012 at price of $2.80 with a 40.00% gain in 13 days.

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