Ahead of Facebook Inc.(FB)'s earnings Wednesday, one investor has a placed a huge bearish bet in the options market against the company's stock.
Options experts were quick to say that the trade appeared to be by an investor looking to protect against losses in the social networking company's stock, rather than speculate on an outsized decline.
Still, the trade drew attention.
The player paid about $8.3 million for a "massive" chunk of put options, "one of the largest FB trades this year," according to Henry Schwartz, president of Trade Alert LLC, an options data provider.
Buyers of put options tend to profit from declines in the underlying stocks. Traders generally use options to hedge against, or speculate on, stock tumbles.
Monday's trader purchased a fresh slug of 30,000 put options that grant the right to Facebook's shares at $45 by January 2015. With Facebook's stock at just north of $60, the options trade is most profitable should the stock tumble 25% over the next eight months.
Brian Overby, senior options analyst at brokerage TradeKing, called the trade "bullish but nervous," since the options trader appears to be hedging the stock position but still holding on to the shares.
Facebook's stock price rose to all-time highs in early March, but has since skidded about 16%. Shares languished for over after the social network's bungled initial public offering in May 2012, climbing back above the companies $38 IPO price last summer. Facebook rose 3.4% to $61.97 recently.
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"If this person owned Facebook stock since inception, it's nearly doubled," he said. "You can kind of understand [a protective options trade] with the run that Facebook has had and the recent volatility," he said.
Investors cheered Facebook's January earnings report that showed its mobile business for the first time made up more than half of Facebook's advertising revenue, which helped to offset a decline of desktop computer usage.
Investors will be watching for the impact of Facebook's recent buying spree: The social network in the first three months of 2014 spent $19 billion on messaging service WhatsApp and bought goggle maker Oculus VR for $2 billion.
Facebook is set to post earnings after the closing bell on Wednesday.
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