Facebook shares close below $29 The decline in Facebook's market value since its initial public offering earlier this month increased to 24 per cent as the social network's shares dropped a further 9.6 per cent on Tuesday to a new low of $28.84. Facebook's stock options, which traded for the first time on Tuesday, indicated that the stock's volatility is expected to continue. The stock options were already among the most heavily traded in the US market, demonstrating the frenzy around the eight-year-old company and its May 18 IPO. The volatility expectations reflect both global macroeconomic uncertainty and questions about the social network's true valuation, meaning that large institutional investors will not support the stock until it falls further, traders said. IN US Equities The trading also reflected bearish sentiment, with the bulk of the trades in contracts expecting Facebook stock to fall, and the price of such hedges rising as the session wore on. Pricing on the options contracts, which allow a trader to buy or sell the stock at an agreed price at a future date, suggested that traders expect Facebook to be about three times as volatile as the broader US stock market, or twice as volatile as Apple's share price. Facebook's stock, which was offered at $38 in the IPO, was the second most heavily traded in the US, at 70.7m shares on Tuesday. Its 9.6 per cent daily fall compared with a 1.3 per cent rise in the Nasdaq 100 index that Facebook is set to join later this year. Some 365,000 Facebook options contracts changed hands, according to TradeAlert, which collects options market data. That is more often than Citigroup typically trades, though still trailing behind the usual market volume leader Apple. The volume was unusual for an IPO, at more than three times the number of General Motors contracts that traded after its IPO in 2010, and more than ten times the first-day volume in Groupon contracts last year. As the session wore on, the initial price for the option to sell Facebook shares at $30 in June - a put option - had doubled. The price for the right to buy at $32 in June - a call option - fell 75 per cent at the same time. There were some bets that Facebook stock could reach as high as $60, or as low as $19 a share. There was strong volume in options contracts to sell Facebook at $25 if it fell below that price by July, though such options are common hedges for any stock. Facebook's shares were heavily traded before their IPO. Institutions such as T Rowe Price and Fidelity bought shares for less than $30 through SecondMarket as far back as 2009. "This wasn't like a typical IPO," said Luke Rahbani of the Stutland Volatility Group, an options trading firm. Those investors already got their pop, so they're likely not willing to buy the stock until it reaches a level closer to its fair value. Some analysts, such as Lou Kerner of the Social Internet Fund, believe Facebook stock ought to be trading at more than $40 a share, based on the potential of its 900m-plus user network to generate future revenues. But others such as Sam Hamadeh of PrivCo, a research boutique, believe that Facebook stock should be closer to $25, based on its cash flow projections, because its business model is still unproven. Shortseller demand for the stock waned, with some 50 per cent of Facebook shares loaned to share selling programmes already borrowed and sold short, according to Data Explorers. That level is high compared to the S&P 500 average of 4 per cent, but the cost to borrow Facebook stock was falling. Andrew Shinn of Astec Analytics, a unit of SunGard, said that borrowing costs were more than 80 per cent below last week. Mr Shinn attributed the easing of demand to Facebook's already large drop, leading to a concern that the share price might stabilise or even rise quickly as exchange traded funds (ETFs) and index-tracking investors began to buy the stock. "It's hard to imagine it now based on the problematic first week of trading, but a piece of unexpected good news could cause investors to jump back in and send Facebook shares shooting upward," he said. Facebook is not yet included in the calculation of major indices but some ETFs have already begun to buy the stock. Providers of indices such as the MSCI and Nasdaq 100 have previously said they will add Facebook more quickly than most new stock offerings due to its size.