The Devastation In Facebook Stock Is The Perfect Long-Term Opportunity

FBRegardless of management’s warnings, FB stock will shrug off these fears soon enough

Last night Facebook (NASDAQ:FB) created its own dramatic headlines after management reported earnings. The message caused FB stock to fall 25%.

Facebook lightly missed on Wall Street expectations, but the cautionary note on guidance from management was very bearish.

So the selling is justified given the message, but unwise. And therein lies the opportunity.

The selling in FB stock is overdone given the potential that still lies in the platform. Those who missed the monster ramp in Facebook stock now have the opportunity to get in as if it were the April earnings report.

The fundamentals on Facebook have not changed even though the headline was bearish. They still have over a billion users very active daily and for hours at a time.

The message from the FB CFO basically said that the company is making the turn from a big growth company to a solid mega-cap company with tremendous value. This is ideal for today’s trade.

Eventually, investors will forget about this year’s incident with Cambridge Analytica and focus on the upside potential in Facebook stock. I believe that management purposely delivered a humble message to deflect the attention of legislators.

My only concern is FB’s hiring ramp. The added cost of this human element opens the door for more  potential data leaks. Nevertheless, the numbers from Facebook are still very impressive. And over long-term this too shall pass.

Technically, FB stock had run too far, too fast since its last earnings report. So it was set to fail on this earnings event. Management needed to deliver an unbelievably optimistic message in the face of regulatory scrutiny.

I suspect that Facebook management is intentionally painting a more cautious picture.

The general stock market thesis is still bullish. Absent of new inflammatory tariffs headlines, the upside scenario still makes more sense than the downside.

In that environment, Facebook stock has an strong chance of shrugging these worries off soon. But today’s trade doesn’t even need a rally to profit. I merely need proven support to hold through 2018 in order to reach maximum gains.

In the worst case scenario, I will own shares of FB stock at a bigger discount than even now. This is an outcome I welcome, because I am certain that I can manage out of my position for a profit in the long-term.

How to Trade FB Stock Today

The Trade: Sell the FB Dec $140 put for $3. There is an 85% theoretical chance of success with this trade. Otherwise, and if the price falls below that level, I would suffer losses below $137.

Selling naked puts is daunting. Those who want to mitigate that risk can sell spreads instead.

The Alternate Trade: Sell the FB Dec $145/$140 credit put spread, where there is about the same odds of winning, but with much smaller risk. Yet the spread would yield 15% if successful.

Remember, investing in the equity markets is always risky, so don’t bet more than you can afford to lose.

Nicolas Chahine is the managing director of As of this writing, he did not hold a position in any of the aforementioned securities. This article was originally published on July 26, 2018.


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