(for now) is the world’s number one social networking
company. Their global reach and network encompasses roughly
900 million people and many Facebookers stay on for hours at a
time. There is no doubt
that they have a captive audience and a high level of participation
and their mother wanted in at the IPO and now all of them are
underwater and most are looking for the "dislike" button on thier
the drop and uncertain future, there is still a lure to the company.
Not because they are making tons of money or
because CEO Mark Zuckerberg is the only executive that can wear hoodies
to press conferences and get away with it. No, investors
still support Facebook because of its potential to monetize the
depth and accuracy of data that they have access to every millisecond.
The NSA would be envious of Facebook's databases.
Google may know what you like to wear; but
Facebook knows what’s in your diary.
Facebook figures out a way to monetize that data without overly
users and ruining their experience, that’s where they will win. For
now they are still trying to figure things out; running regression
programming adjustments and marketing tests to find the secret sauce.
problem I see is that there will be many bad batches of sauce before
even get close to one that’s perfect, if at all.
huge disappointment and subsequent 40% slice in stock price was blamed
on Facebook, their algorithm and functionality changes.
you think of Facebook, I wanted to take a moment to review the
let you in on what option traders are thinking in terms of an outcome
FB is a
Zacks Rank #4 (Sell) and is currently trading at roughly 80
times 2013 earnings,
which puts it in the “expensive” zone along with names like Chipotle
last earnings report) and Travelzoo when
it was up at $95 per share (it’s now at $20).
Sure these are completely different companies in different sectors, but
growth is growth and if you can’t sustain it as a publicly traded
shares are going to feel it.
Zacks Consensus Estimate is for the stock to earn 9 cents in Q2 with
accurate estimate coming in at 5 cents, which gives this stock a
of 44%. This essentially means that FB is not expected to
“wow” investors tonight Although, the ESP of
0 is likely due to the fact that they pre-announced.
the past 60 days alone we have seen estimates from for the current and
quarters as well as FY2012 and FY2013; this is also not indicative of
When you have a stock that has only traded for a couple months, it’s
to determine a “normal” trading pattern of volatility. It’s
common that options on new issues like
FB will have extremely high volatility.
is no exception here! In fact, ahead of
the report the July options that expire tomorrow are trading at over
228% volatility. In layman’s terms, that would equate to a
stock that moves roughly 14% a day on average!
I look at the July straddle (call and put), it tells me that option
expecting at least a 10% move after tonight’s
is also a moderately bearish bias today, even after the 6.65% haircut
received after Zynga’s report. The
majority of action I saw today was in the July 25 puts (expiring
are expiring tomorrow; they traded almost 16,000 contracts before 1:00
time. They were followed closely in
volume by the July 30 calls (expiring tomorrow) which traded almost
could be a trader “collaring” the stock, which means they buy the 25
sell the 30 call against shares that they own.
The trade can be put on for about even (no cost) and it offers the
trader absolute protection below $25.
a great little strategy, but is usually employed when a trader is
scared of a
at the facts, I
think that might just be the best choice in this case; because the
Zacks Rank, the
option pits and I all believe that FB could be in for a little pullback
might be a buyer of Zuck's project at $22.00; but we will see
Don’t ignore the
underlying trends in the option markets. Options are
often where the “smart money” does a great deal of trading because they
operate with a certain degree of anonymity.
that this is not a guarantee of market direction, nor
should you go and fire off a trade without conducting your own due
diligence. I am simply breaking down the logic of the trade
the pieces together.
because someone buys 5,000 call options, doesn’t mean that
they are bullish on the stock. Those calls could be purchased
as a hedge
to a very large short position or they could be only a part of a
that the trader is “legging” into. The trader could also be
an existing BEARISH position!
combining options action with solid fundamental data like the
Zacks Rank, it helps stack the odds in our favor of targeting the real
direction and intention of the big volume option players.
Levy is the Senior Equities Strategist for Zacks.com and editor of the Whisper Trader