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CBOE to start listing Facebook option contracts this month

Because of high investor interest, the Chicago Board Options Exchange will start listing Facebook option contracts on May 29, sooner than normal.

May 19, 2012|By Chad Terhune, Los Angeles Times

Facebook shares fell flat on their Nasdaq debut, but another trading venue for the stock will open later this month.

The Chicago Board Options Exchange will start listing option contracts on the Menlo Park company May 29, according to specialist firm Susquehanna Investment Group. This is sooner than normal for a company going public. The exchange typically waits a month or more before offering these options, but investor interest in the social media giant accelerated that timetable.

"I've had a lot of clients asking about Facebook options and when do they come out," said William Lefkowitz, chief options strategist at VFinance Inc. in New York. "But you have to know what you are doing before jumping in."

In recent years, more retail investors have been dabbling in options with help from online brokerages offering seminars and website tutorials. These trades allow investors to speculate on the future price of shares.

There are two basic types of options — put and call. Put options grant investors the right to sell the stock at a predetermined price, while call options give owners the right to buy a stock at a preset price.

Investors typically pay a certain amount, called a premium, to exercise those rights.

There are risks involved in this speculative trading, particularly if share prices don't rise or fall as expected.

The premiums for options on Facebook could be higher than usual if there is still high demand by the time the options are available. Also, increased premiums can be charged for volatile stocks.

Facebook's short trading history may also make option pricing fluctuate more than usual. That's one reason the Chicago exchange often waits several weeks before listing option contracts.

But experts say the weak opening for Facebook shares might offer an opportunity.

"The quiet turnout for Facebook shares so far might mean it's a little less rich in premiums," Lefkowitz said. "People will get to watch it for a few days. They don't need to make a decision right now."

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