Call Options Or Put Options On Facebook (FB)?

| January 30, 2013 | 0 Comments

FB OptionsFacebook (FB) has been on a bumpy ride since its initial public offering last year.  But the social media juggernaut has been a roll the last few months. 

FB currently trades for $31.28 per share.  The shares are up a whopping 78% from the low of $17.55 it reached in September.  However, the shares are still 30% below the high of $45.00 it reached on the day of the IPO.    

Is this an opportunity to buy call options on FB as bulls push the stock higher after earnings?  Or should you buy put options on FB before the bears send it crashing lower? 

The bulls make a convincing argument…

After suffering through a few horrible months after their IPO, FB has regained investors’ confidence.  And investors are expecting big things from them today when they announce quarterly earnings after the bell.

Analysts are expecting FB to earn 15 cents per share on revenue of $1.5 billion.  And in my opinion, they shouldn’t have any trouble beating those estimates. 

More importantly, FB must continue to lay out their plans for future growth. 

Facebook CEO Mark Zuckerberg learned a valuable lesson after the IPO last year.  You can’t tell investors you don’t care about profits and expect them to buy your stock. 

Look, we all know how many people use Facebook.  And there’s an unbelievable amount of potential to make money when so many people are tuning into your site on a daily basis.

At this point, it’s more important to see the innovations FB has introduced over the last year in regards to advertising and how they project the revenue they are creating to grow over time. 

FB must continue to engage and inform investors so they feel confident about the long-term growth of the company.  As long as Mr. Zuckerberg remembers the lessons he learned last year, the stock should continue moving higher from here.

But the bears have a compelling case as well… 

FB has simply come too far too fast and it’s time for a correction. 

At this point, FB is faced with a challenging fundamental and technical outlook. 

Right now, FB is trading at 47x this year’s estimated earnings.  That’s a pricey stock any way you slice it.  And with whisper numbers for earnings approaching 17 cents per share… the stock is priced to perfection. 

If FB doesn’t blow away revenue and earnings estimates tonight, investors will hit the sell button first and ask questions later. 

What’s more, FB is now at the high watermark the stock set back in June a month after the IPO.  This technical level should provides a good exit point for anyone who has rode the stock up 20%, 30%, 50%, or even 78% over the last few months. 

And if the selloff gains any momentum, we could even see some investors who bought the IPO at $38 throw in the towel at this point too.  This additional selling pressure will likely send FB skidding back to around $25. 

If you think the bulls are right, take a look at buying the FB February 2013 $32.00 calls for around $1.61

If you think the bears are right, take a look at buying the FB February 2013 $31.00 puts for around $1.80.

Good Investing,

Corey Williams

Tags: , , ,

Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.