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Making Fast Cash on Facebook

Brian Stutland | President, Stutland Equities and CNBC Contributor
Wednesday, 14 Nov 2012 | 11:44 AM ET
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This morning, Facebook shares are enjoying a nice bump, even after another lock-up expiration has set 773 million shares free for trading.

This is a big number, and the new shares eligible to be traded almost doubles Facebook's float. Indeed, in the past, Facebook's stock price has tumbled on lock-up expiration days. This time, however, traders did not make the same volume of bearish bets that they had in the past. According to the Wall Street Journal, the number of Facebook shares being borrowed to short has declined by 40% this month, and is at its lowest level since June. The cost of borrowing Facebook shares has likewise been halved, as demand is no longer there.

In terms of options activity, Facebook puts were very active yesterday, but mostly on the selling side. When the stock was trading at $19.95, one trader sold 12,590 November 19-strike puts for $0.30 each. This was a bullish to neutral bet that Facebook will not decline below $18.70 by expiration this Friday. If Facebook is below $19, the trader will be forced to by the stock at that level. But judging by Facebook's action this morning, this trader must be pretty confident about bringing home the whole premium. (Track Facebook Stock Here)

And that isn't the only options trader cashing in, either. Prior to past lock-up expirations we had seen heavy put buying, but yesterday's options trading was quite different indeed. In total, $1.6 million in put premium was sold yesterday, on over twice the average daily trading volume.

Selling an out-of-the-money put is a bullish to neutral strategy, and by employing it yesterday, traders were saying that they thought Facebook will not decline much more this week. However, before you get too excited about Facebook's prospects, just note the expirations of the puts they were selling. The fact that most traders chose to sell November puts, rather than December or further-dated contracts, tells us that over the long-term, they expect the risk in the stock to remain to the downside.

Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."

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