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Facebook options traders bet on further slide

May 29, 2012: 5:05 PM ET

The market is betting that Facebook (FB) will continue to swing wildly over the next two months, and investors in newly minted Facebook options are banking on more volatility.

Investors rushed to buy into Facebook options, which give investors the right to buy or sell a stock a certain price, on Tuesday. This was the first day that Facebook options were available.

Shares of Facebook plunged nearly 10% Tuesday. (Opening days of any kind don't seem to go too well for Facebook). Overall, traders in the options market are betting that the stock is slightly more likely to fall below today's closing price of $28.84, said Joe Bell, senior equity analyst at Schaeffer's Investment Research.

56% of the roughly 365,000 contracts that changed hands were puts, or bets that the price of Facebook would drop. Put options with a strike price of $28 that expires on July 21, 2012 sold for $2.35 Monday. That means that investors were willing to bet that the price would fall below $25.65 or more than 10% (the cost of the option) before July 21, 2012.

"People are willing to pay a lot for Facebook options, because they have no idea how to value the stock," said the head of equity options trading at an investment bank.

Alternately, investors paid $1.65 to bet that Facebook's shares could be sold for $31 by July 21, 2012. In the case of these more bullish types of options, known as calls, Facebook shares would have pop back to $32.65 to have them pay off.

Facebook had the second highest volume of options trading activity Tuesday, behind only Apple (AAPL).

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Maureen Farrell
Maureen Farrell
Staff writer, CNNMoney

Maureen Farrell is a staff writer at CNNMoney and covers Wall Street, banking, mergers and the stock and bond markets. Prior to joining CNNMoney, she covered venture capital and entrepreneurs for Forbes, and mergers and bankruptcy for Mergermarket and Debtwire, both divisions of the Financial Times.

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