markets

Options Market Showing Little Fear of Facebook Fallout Spreading

  • Facebook protection costs well off highs from early February
  • One stock where implied volatility is showing stress: Twitter

Facebook Lost as Much as $60B in Market Cap Since Data Breach

Facebook Inc.’s bad week has dragged tech shares lower, but options investors are betting the fallout will be contained.

While the social-media giant’s market value has plunged $60 billion in two days, selling in related firms from Google Inc. to Pandora Media Inc. and Snap Inc. has been less severe. A measure of implied volatility on the broader Technology Select Sector SPDR Fund, ticker XLK, has barely budged in the days since Facebook’s latest data fiasco sparked fears regulators would crack down on how social media sites handle customer data.

“This is definitely a Facebook-centric issue,” Michael O’Rourke, JonesTrading chief market strategist, said by phone. “It’s not going to affect other tech names in different industries because it’s not specifically their problem.”

Options traders have even pulled back bets that Facebook itself is in for more pain. Implied volatility on the company’s options appears to be receding Wednesday and the spike notched earlier in the week pales in comparison to the jump in stress during the market correction in early February.

That’s not to say the company is out of the woods.

“The market hasn’t heard from management, hasn’t heard a response or a plan of action for this major issue,” O’Rourke said. “The government wants a response.” 

Nomura Inc. currency strategist Bilal Hafeez warns that Facebook is just the start of a broader tech selloff. A host of factors, from populism to tighter regulation, are converging to undercut the sector at a time when valuations are near extreme levels, Hafeez wrote in a note published Tuesday. The fallout could sweep far beyond the confines of equity markets, weighing on currencies and benefiting haven assets like the yen, he said.

Signs of options market concern do exist when it comes to Twitter Inc. Protecting against further declines has become particularly expensive, with prices of bearish versus bullish options -- or skew -- hitting levels not seen since October 2016, according to implied-volatility data.

But even that could be an isolated story: the shares fell the most in eight months yesterday as Israel’s justice minister warned Tuesday that the government is considering taking “legal action” against Twitter for ignoring repeated requests to remove online content that was inciting or supportive of terrorism. 

Interest for hedging in Twitter has been increasing since the start of the year, while it’s been declining for the broader industry by means of put versus call open interest in the tech-heavy Nasdaq 100 Index.

— With assistance by Natasha Doff, and Eric Lam

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE