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Unusual and heavy activity today in Meta Platforms (META) put options may imply bearish views or they are collecting income. This can be seen in today's Barchart Unusual Stock Options Report. If long the puts they are skittish, but shorting the puts provides income. However, the likelihood is that the trades imply the traders are net short the puts, which means they believe META stock will stay flat or rise in the next week or two.
There were three tranches of unusual put options trades as can be seen in the chart below. In each case, the volume of put options traded today is about 20x the existing amount of contracts outstanding. In other words, these trades dwarf the existing volume, which usually indicates an institutional trade.
The Three META Stock Put Option Tranches
For example, the first tranche is for over 3,000 puts at the $297.50 strike price put option for the July 7, 2023, expiration period. Since META stock is at $294.75 today, this means the put option is already in the money by $2.75. But the premium paid seems to be $5.40 per contract for over 3,000 contracts, or $1.62 million.
That means that META stock would have to fall to $292.10 before this put is profitable if the trader went long the puts and paid $. However if the trader shorted the puts, they collect the $5.40 in income and will hope that the stock rises over $297.50 by the close on Friday, July 7. Otherwise, they will have to buy back the puts or be prepared to buy over 300,000 Meta stock shares at $297.50 (i.e., 89.25 million).
The second tranche is similar except that the strike price is $292.50 and the premium was $2.59. However, the volume was well over 10,000 puts. This probably implies that the trader is essentially short the puts, and the trader expects META stock to rise. They collected $2.59 per put in income, or $2.59 million.
The third tranche is in between at $295.00 and the expiration is 9 days from now and the premium is $6.30. Since this trade is at the money and the volume is over 4,500 puts, I suspect that the investor may have shorted these puts as well to collect the income of $2.835 million.
So, theoretically, the trader might have collected $2.59 million and $2.835 million in income (5.425 million) and they may have hedged their bet by buying $1.62 million in long puts.
What This Means for Investors in META Stock
Meta has been in the news lately for its plans to launch a rival to Twitter in a product called Threads. The company is set to launch the product on July 6. That could easily be the reason why the traders are shorting and going long the META puts.
As a result, they may believe the stock will jump one way or another. Typically, if the launch goes OK, it could move the stock higher. That seems to be what the short expiration period and heavy volume around these trades imply.
If the traders find that the trades go against them expect to see heavy volume right away. In any case, since 2 of the three tranches close on July 7, there should continue to heavy volume on Friday as well.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
