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We expect Facebook IPO to price tonight and the shares are anticipated to begin public trading Friday May 18,2012.

We expect Facebook shares to begin trading as a listed company tomorrow morning sometime after the opening of the regular market.  Here are a couple of quick bullet points of what to expect.

• The symbol is FB.
• The primary listing exchange is the Nasdaq Exchange (“Nasdaq”).
• FINRA does not allow member firms to accept market orders for IPO’s prior to the issue commencing trading in the secondary public market.
• Currently the Facebook IPO price range is $34-$38.  OptionsHouse is not an underwriter and does not have Facebook shares available at the IPO price.
• If entering orders for Facebook, we strongly recommend using limit orders all day as Facebook shares are expected to have extreme price volatility especially on the first day.
• Customers will be able to enter Facebook orders after the market close today which will have a pending status until the order is accepted by our vendor we expect this tomorrow morning.
• Before the IPO is released for trading on the Nasdaq exchange:

The Facebook shares will enter a quote-only period for approximately 15 minutes

• THE SHARES WILL SHOW A BID QUOTE AND ASK QUOTE DURING THIS TIME HOWEVER THE SHARES WILL NOT BE OPEN AND AVAILABLE FOR PURCHASE AT THE QUOTED PRICES.
• Think of this as an opening rotation allowing time for the market to determine the first traded “PUBLIC” price
• Again expect extreme price volatility during the first day of trading and we recommend using limit orders.

The Quote only period can be extended by Nasdaq due to excessive quote price volatility.

The IPO is expected to be released for trading at a time determined by the Nasdaq.

REMEMBER:  No market orders will be accepted in Facebook before the shares are trading publically.

I have traded options professionally for over 25 years. This chosen profession has been a wonderful choice for me as I can think of no other profession where every day you can answer the question, “Did you have a good day today?” with such objective clarity.

The secret to longevity in trading derivatives is very serious however. It is very simply mitigating risks and eliminating uncertainties whenever and wherever possible.

I have seen far too many retail traders do the exact opposite of this discipline with disastrous results. They are tempted to attempt to make a quick couple of bucks on expiring options rather than follow the discipline that serious professional traders carry out around expiration. Professional traders eliminate risks! I am embarrassed to say that many of our customers add additional HUGE risks for the potential reward of MERE pennies. This is insane!
At the end of last year, the SPY quarterly options expired at the end of the day on the last trading day, December 30, 2011. In the last 20 minutes of the session, traders actually sold the 126 -127 call spread for 2 cents! Typically a credit call spread is a limited risk / limited return strategy. On expiration day, the risk/reward is even worse than giving the 50 to 1 odds on a 1 dollar call spread!

This is due to the fact that the 127 calls which were purchased were really very far out of the money with so little time to go before they expired. So this is really the equivalent of selling the 126 calls naked for two cents. The seller of these options actually took “pin risk” into their portfolio for a measly 2 cents! Pin risk is the uncertainty of the exercise outcome due to the underlying closing price being very close to the short strike price position.

The SPY closed that particular session at 125.50 but the options and futures in this ETF continue to trade for 15 more minutes on the exchanges. Additionally the stock continues to trade in the post market session. During this time the SPY stock price rallied thru the 126 level all the way up to 126.20 before settling at 3:15 p.m. CT at a price of 126.05. This price action caused many of the long 126 calls to be exercised further causing assignments to the short call positions. Likewise many 126 strike puts were NOT exercised. This resulted in my customers being surprised over the long weekend with a short stock position in the SPY! The market gapped higher on the first trading day of the New Year, January 3rd , resulting in RegT margin calls and large losses in these short stock positions.

It is important to realize that during the expiration of the options this is actually no longer a short call spread but rather a resultant short stock position that has unlimited risk to a market move higher. All this risk for only a limited potential return of 2 cents!

As foolish as it is to open a spread with a maximum potential gain of only 2 cents, it is equally foolish for the traders who did not cover their short option exposure before expiration. They too were allowing all that uncertainty and risk to enter into their portfolios. This inaction, to me of not covering a short position at 2 cents is the same as shorting that position for only 2 cents!
Weekly options volume has exploded and expiration now is an every Friday occurrence. These proliferation of expirations makes every Friday a potential for disaster without proper monitoring and managing open expiring positions.

The lesson learned here is professional traders take expiration risk OFF their sheets. How? By closing down short expiring options before they have a chance to turn into a stock position that is unwanted, uncertain and unlimited in the potential loss. Remember, the long holder of options controls the decision around exercising. Short option holders have only obligations to buy or sell stock and are at the mercy of the exercise decision whims of the long holders.