Call Options Or Put Options On Facebook (FB)?

| October 29, 2014 | 0 Comments

FB OptionsEarnings for social networking giant Facebook (FB) hit the market yesterday. So of course, there’s plenty of action in the stock today.

FB shares are currently trading at $75.96, up 48% for the year. The stock is trading 6% below the 52-week high of $81.16 and is 74% above the 52-week low of $43.55.

Is this an opportunity to buy call options on FB because of its strong earnings? Or should you buy put options on FB because of the company’s poor guidance? 

The bulls make a convincing argument…

FB beat earnings expectations on both the top and bottom lines. Revenues hit $3.2 billion, better than estimates of $3.1 billion. EPS came in at $0.43 per share versus projections of $0.40.

More importantly, mobile ad revenue was 66% of total revenue, up 5% from the previous quarter. That’s the most important growth area for the company.

Meanwhile, monthly active users climbed to 1.35 billion, an increase of 14%. And, mobile monthly active users reached 1.12 billion. It’s hard to argue with those amazing numbers.

But the bears have a compelling case as well… 

On the other hand, FB’s guidance was significantly worse than expected. And so far today, the stock is getting pummeled.

The company said expenses could grow between 50% and 70% next year. FB plans to invest heavily in the company. The money will be used for new technology research and to increase staff. Still, that’s really going to reduce profits for next several quarters.

Not to mention, FB’s $22 billion purchase of WhatsApp only generated $10 million in revenue and lost $140 million overall. Clearly, FB needs to be getting more out of the investment.

So is it time to be bullish on FB due to user, revenue, and profit growth or should you take a bearish position because the future doesn’t look so bright?

If you think the bulls are right, take a look at buying the FB December 20th 80 calls for around $1.75. 

If you think the bears are right, take a look at buying the FB December 20th 72.50 puts for around $2.00.  

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.