updated 09:15 pm EDT, Tue May 29, 2012
Facebook options trade heavily as investors bet on decline
Tuesday marked the first day that investors were able to trade options on Facebook's recently opened stock, and, if initial indications are to be believed, the market believes Facebook's stock price will fall even further than it has since its opening. CNN reports that Facebook options saw heavy activity today, more than half of which were bets that the stock's price would drop.
Option trading allows investors to buy or sell a stock at a specific price, effectively letting them wager on whether a stock will increase or decrease in value. In the first day of option trading for shares of the social network, 365,000 contracts changed hands. Fifty-six percent of those were "put" options—bets that the stock would decline.
Options trading activity for Facebook was second only to Apple today. Since their debut, shares in the social network have declined sharply, losing 10 percent Tuesday to close at $28.84—roughly 26 percent below its debut opening price. The decline in share value is seen by some as indicative of a lack of confidence on the part of investors in Facebook's ability to adequately monetize its massive user base. Facebook relies on advertising for a considerable portion of its revenue, but has been struggling to attract advertisers in the wake of other big firms abandoning ad efforts on the site.