The market has been buzzing about the fact that three top executives of Facebook have taken their first opportunity to sell some of their stock in the social networking company.
The sales were part of 230 million shares awarded to top executives and employees prior to the IPO that were subject to lockup until last week.
According to Forbes, another 777 million shares awarded to Facebook employees will come off of lockup next week. It is expected that Facebook employees will continue to sell shares for the rest of the year.
Some of the articles are trying to put a sinister spin on the insider sales but, although shares sold by chief accounting officer David Spillane, chief operating officer Sheryl Sandberg and general counsel Theodore Ullyot resulted in multi-million dollar paydays for each of them, each executive continues to own a lot more shares than they sold.
From a market perspective, the insider sales are significant because they seem to have undermined the rally following the announcement of third-quarter results on Oct. 23. With many more shares coming out of lockup next week, there could be even more Facebook stock sold as executives and employees decide to put some money in the bank.
Does this mean that there are problems at Facebook? Probably not. What it does mean is that bills are coming due on spending that took place in anticipation of the IPO or that these executives are diversifying their portfolios.
As the old Wall Street saying goes, "No one ever lost money by taking a profit."
What is more notable for investors is the recent activity in the Facebook weekly options.
Facebook Stock Options More Active
There has been a huge increase in activity in both puts and calls at the 21.50 strike. The Facebook stock price has come up off of its intraday lows near the end of the trading session and there is some speculation that traders are expecting a rebound in the share price toward the end of the week.
Looking at the November options (expiring Nov. 16, 2012), there are a lot of out-of-the-money puts outstanding with strikes between 15 and 21 and traders have been adding to those positions today, particularly at near-the-money strikes of 19, 20 and 21. Equally, activity has increased in near-the-money calls. Traders are adding significantly to positions at strikes of 22 and 23.
Overall, the tone in the Facebook options market is somewhat bearish but that is understandable with so many shares coming off of lockup next week.
Facebook chairman and chief executive officer Mark Zuckerberg has stated that he will not sell any of his shares before next year. Some articles in the press have stated that a sale by Zuckerberg would mean the there is trouble at Facebook.
But that is reading too much into it. As Freud is alleged to have said, "Sometimes a cigar is just a cigar."
Facebook stock gained $0.07, or 0.33%, to close at $21.25 Monday.
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