Call Options Or Put Options On Facebook (FB)?

| February 21, 2014 | 0 Comments

FB OptionsSocial media giant Facebook (FB) is once again making headlines.  The company dropped a bombshell on the markets with its purchase of texting service WhatsApp for $19 billion.

FB shares are trading at $69.63, up 27% year to date.  The stock’s up a whopping 207% from the 52-week low of $22.67 and is now 1% above of its previous 52-week high of $69.08.

Is this an opportunity to buy call options on FB because of the potential market opportunity from the purchase of WhatsApp?  Or should you buy put options on FB because the company dropped $19 billion on a business with virtually no revenues?

The bulls make a convincing argument…

There’s a reason Facebook has become one of the 25 largest public companies on US exchanges… valued at roughly $175 billion.  The company not only has a massive, active user base, but management also continues to innovate.

In 2012, FB got bought Instagram in what’s now considered a steal. That gave the company access to one of the most popular video and photo-sharing services.

Now, the company is making the same bold move by acquiring WhatsApp for $19 billion.  Besides WhatsApp’s 450 million users, FB is positioning itself as a major player in the texting and chat service space.

But the bears have a compelling case as well… 

$19 billion is a ton of cash to drop on a free service that generates almost no revenue.  450 million users or not – WhatsApp isn’t worth much if it can’t monetize the user base.

What’s more, WhatsApp management is against using advertising to generate revenues.  That’s in major conflict with FB, which relies on advertising almost completely. 

So, $19 billion (more than what several major companies are worth right now) is being spent on a company with virtually no revenues and an entirely different ideology.  What are the chances this acquisition is going to work?

So is FB worth buying after the WhatsApp purchase, or is the huge amount of money spent a reason to take a bearish position on the stock?

If you think the bulls are right, take a look at buying the FB March $72.50 calls for around $2.00.

If you think the bears are right, take a look at buying the FB March $67.50 puts for around $2.25.

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.