Call Options Or Put Options On Facebook (FB)?

| November 4, 2013 | 0 Comments

FB OptionsFacebook (FB) is back in the news after the company released earnings this past week.  The social media giant is considered a benchmark for the social media industry and is an important source for online advertisers.

FB shares are trading at $49.22 and are up 87% so far for the year.  The stock’s up 161% from the 52-week low of $18.87 and is 10% below the 52-week high of $54.83.

Is this an opportunity to buy call options on FB after the company posted strong earnings?  Or should you buy put options on FB because the site is starting to lose teen users?

The bulls make a convincing argument…

FB beat expectations across the board.  Revenues came in just over $2 billion, up 60% from last year.  Plus, it was also better than the $1.9 billion predicted by analysts.

More importantly, FB’s earnings per share destroyed expectations by hitting $0.25 – well above the $0.19 consensus estimate.  That’s a huge beat no matter how you slice it.

Finally, 49% of revenues came from mobile ads.  That’s a massive improvement from last year’s 14% of revenues.  And, it’s an excellent sign the company has adjusted to the increasingly important mobile user.

But the bears have a compelling case as well… 

FB shares initially popped on the earnings news but quickly sold off after the CFO spoke.  He spooked investors by mentioning the company lost a small amount of active teen users for the first time ever.

Teens are a huge market for social media sites, so a reduction in teen users is a big deal.  Plus, the company is losing teen market share to Twitter, which is about to go public.

In order for the company to continue growing the bottom line, it must grow – or at least maintain – its active user count.  So, this could be an ominous sign for FB if it’s losing its appeal.

So is FB’s impressive quarter a reason to be bullish, or is the company’s loss of teen users a reason to sell?

If you think the bulls are right, take a look at buying the FB December $52.50 calls for around $1.50.

If you think the bears are right, take a look at buying the FB December $46 puts for around $1.50.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.

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