The drop by 45% of the Facebook stock after its initial public offering generated returns of 500% for investors who bought financial products counting on the biggest social networking company shares decline. An investor had to pay 10 cents in the week after Facebook listing to buy a financial instrument (put warrant) which estimated that the stock’s price, $38 after its start on the stock market in May, will reach $22 by March 2013.
At present, when Facebook shares were worth $20.72 at the end of the trading session Tuesday on Wall Street, those financial instruments have a value five times higher. Put warrants give the holder the right to sell to the issuing company a certain amount of shares at a predetermined price, the sale will take place on a certain date or within a certain period.
Facebook, which attracted 16 billion dollars during the largest IPO in the IT sector, has not closed any trading session over the listing price and lost 21% since the reporting of financial results on July 26. “If you bought a put warrant for the 22 dollars level when Facebook was trading at $38, then you made a lot of money,” said head of distribution for Germany and Austria at Vontobel Holding, a company that has issued covered warrants for 22 dollars.
The value of these instruments increases as they are getting close to the specific price quotation. Investors can sell for profit or expect to go below this share price to receive compensation depending on the extent of decline.
BNP Paribas, Commerzbank and UBS are among banks which have listed on European exchanges, starting in May, 2,082 such warrants and certificates relating to Facebook stock. Banks offered both contracts to increase the price, up to $150, and to decline of the stock, to a minimum of $12.
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