Facebook’s IPO Price Range and the Roadshow Video, Billionaires Cashing Out, and the Drama of Binary Options

The Wall Street Journal is reporting that Facebook (ticker symbol: FB) has set its IPO price range at $28 to $35 range for their May 18, 2012 initial public offering of stock — which is only two weeks away! After all of this waiting, stalling, and posturing – Facebook will become a publicly traded company this month. With this price range they managed to keep the headline valuation at the top end of that range $95.9B USD, or just under $100B. (It’s sort of like the pharmacy where a product that sells for $0.99 cents seems so much cheaper than a dollar $1.00!) Then if/when Facebook’s IPO becomes oversubscribed – and with the huge demand — it will be the investors who will drive the price of the stock into those higher valuation ranges. (Problem solved — Facebook’s not greedy, but shrewd.)

BILLIONAIRES CASHING OUT & FACEBOOK VIDEO ROADSHOW

There have also been a number of stories (including those at Forbes) about some early investors in Facebook selling at the IPO. Perhaps CEO Mark Zuckeberg’s sales are just tax motivated as many of the reports contend — but no one would blame him for taking some money off the table. (Technology can be harsh and fickle — look at Yahoo! now — the shadow of what they once were in the tech sector).

Absent from this list of insiders/early birds who are selling is 27-year old billionaire Dustin Moskovitz (one of the original four Facebook founders, and its first Chief Technology Officer), and Sean Parker, early FB president and the guy who brought Zuckerberg to his first real investors. Do they really see more value by holding on? Do these guys believe that Facebook will easily grow into its rich IPO valuation? Make sure you check out the video roadshow that Facebook put together to convince us all to become shareholders… Interesting to say the least.

FACEBOOK BINARY OPTIONS: ALREADY TRADING

So here’s an article on binary options already being traded on Facebook. Unlike traditional options, these call (bullish) and put (bearish) options on Facebook’s market capitalization at the end of the first day of trading require the stock to pass certain milestones for either a whopping 70% gain or an 85% loss. Anyoptions is one of the places where these trade in $25 increments up to a maximum of $1000 per strike (40 count).

Looking at their site, buyers of these Facebook binary options CALLS choose the Facebook market valuation above $125B, $131B, $137B, $144B, $151B, or $158B after the first day of trading and return between 70% and 300% over the price. For binary options buyers of PUTS the FB valuation must be below $104B, $97B, $91B, $84B, $72B USD on opening day for the same return in the other direction.

Let’s do some math based on the $28 to $35 dollar price set for the Facebook IPO, and the reported $77B to $96B USD valuation implied for the company. What investors must consider is that based on the recent numbers released for the IPO trading range these binary option calls require Facebook to close at $45 to $57 USD by the end of the first trading day. Put buyers in these binary options need FB stock to close between $37 and $26 for their maximum payout. You have to decide will the IPO stall on day one, or will it mark its first trading day with a double? These options also make outright buying the underlying stock look not as risky — at least you’ll own something in June!