Meta's Stock Slump Boosts Demand for Put Options for Mag 7's Worst Performer

$Meta Platforms, Inc.(META)$   saw increasing demand for put options that can shield investors against a continued share slump for the worst performing Magnificent Seven stock over the past three months. 

Shares fell 1.7% Tuesday after Bloomberg reported that the parent company of Facebook, Instagram and WhatsApp was in talks with $EssilorLuxottica(ESLOY)$   for the potential doubling of production capacity for AI-powered Ray Ban smart glasses by the end of the year. 

"Meta potentially doubling Ray Ban availability, anticipating demand for AI wearables, could be too optimistic, given the challenges in distilling LLMs to smaller size models that can work with low latency on devices," Bloomberg Intelligence industry analysts Mandeep Singh and Robert Biggar wrote in a note Tuesday. 

The stock has tumbled 12% over the past three months, worse than $Microsoft(MSFT)$  's 8.4% decline and a 1.3% slide for $NVIDIA(NVDA)$  , amid growing debate whether surging spending on the buildout of artificial intelligence infrastructure would deliver enough return to justify the cost. 

In October, Meta raised its 2025 capital expenditures outlook to $70 billion to $72 billion, from a previous forecast of $66 billion to $72 billion. For 2026, the capex dollar growth will be even “notably larger” as infrastructure costs, including cloud expenses and depreciation grow faster, CFO Susan Li told analysts during the company's last earnings call.

Put options volume doubled to 307,266 contracts Tuesday, from 152,792 a day earlier and the 20-day average of 152,665. Contracts that give their holders the right to sell Meta shares at $700 by Friday attracted the heaviest trading among put options, after the stock declined further below that strike price, pushing it well in the money. 

Volume soared after an active seller collected a $55.9 million premium for put options that give their holder the right to sell 795,000 Meta shares at $700 each. Minutes later, another seller had a $43.6 million premium covering the same put options covering 618,000 Meta shares. By the time the market closed, volume on that specific put option reached 19,970 contracts, almost 21X the open interest. Each put option covers 100 shares. 

If those block trades were just single-leg transactions and not paired with any other orders, the put option just has a profit probability of less than 51% for the seller. At closing prices, the contract carries a maximum profit potential of $6,945 per contract, and a maximum loss potential of $63,055. The breakeven is $630.55, meaning the seller will lose money on that trade if Meta shares fall below that level before the contract expires Friday, unless he or she has other trades to protect against that decline.  

Meta faces other challenges. $Apple (AAPL.US)$'s multi-year partnership with $Alphabet-A (GOOGL.US)$ for the use of Google's Gemini AI models and cloud technology to help power future Apple Intelligence features could AirPods the more competitive AI wearable. 

"Though Meta is focused on adding LLM capabilities for voice assistants, we believe the multiyear Apple-Alphabet partnership to use the latter's Gemini model for embedding voice assistant features in Apple's Siri will likely be a headwind for Meta, given the larger installed base for Apple, which ships over 100 million AirPods a year and already has added LLM-based real-time language translation to its devices," they said. 

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