Buy Facebook Puts on Weak Usage Trends
Options Trade:
Buy to open the April 20, 2018 put on Facebook (NYSE: FB) with a strike price of $175 at $5.20 or lower. Symbol (FB180420P175)
The Rationale: It may sound like heresy to short market darling Facebook but it looks like it’s hitting some major stumbling blocks. I expect the stock to stumble during its upcoming February presentation at a significant investor conference.
- Facebook’s user count is hitting a wall. A recent report by Pivotal Research shows Facebook users fell 4% in November. This is just as the company is under scrutiny for its passive role in the Russian trolling incidents.
- On its fourth-quarter earnings call on January 31 management noted that the number of hours users spent on Facebook dropped 5%. Advertising revenue is directly related to the number of hours spent on the service.
- The company’s recent tweak of its algorithm which decides which news updates from family and friends are prioritized is likely hurting usage even more. Users have been complaining that they see few updates and miss important ones that hadn’t been highlighted.
- Recent reports note that competitor Snap is trying to lure advertisers from Facebook’s Instagram division by offering free ads.
- Management will present at a Morgan Stanley media conference on February 28. I expect these issues to come to the surface during these meetings.
Stock Talk
Stanley
FB filled for $4.90 @ Fidelity
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Victor
filled @ $4.80 ND on Tastyworks.
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George McMillion
Filled @$4.90 on TDA
Thank you Linda
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Paul
FB filled at $4.90 on Fidelity
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Abhi A
Hi Linda. That quickly went up. Going between 5.50 and 5.65. What is your suggestion? Also, why April 20 and not any earlier? Thanks.
Linda McDonough
Hi Abhi,
I didn’t expect it to drop so quickly. It moves so much with the market, I think you’ll have another chance to get them lower. I do suggest a 10-20 cent range around my limits.
You can certainly choose a closer expiration as the conference is February 28th. FB has weekly option expirations also, but they are not as liquid.
Best,
Linda
Ray
Thank you for this trade recommendation Linda.
May I take from your comment that you’re expecting a fall in price as a result of the Feb 28th conference?
If so, wouldn’t a March expiration offer more leverage?
If not, is there another catalyst after Feb 28th which you anticipate will move the stock lower?
I’m in on the April put trade, but if the catalyst is Feb 28th, I might consider trading one of the April 175s for 2 of the Mar 2nd 177.5s
Linda McDonough
Ray,
Yes, the immediate catalyst is the Feb. 28th analyst presentation. I often opt for a further out expiration as sometimes the move in a stock doesn’t happen exactly as planned. However, many subscribers tailor the suggestions to fit their parameters, which is a great idea. There are many ways to skin this trade!
Best,
Linda
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Jeffrey J
Filled @ $4.50 on Tradestation this morning.
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Michael D
FB filled @ $4.80 this morning at the open.
Schwab SS.
thank you Linda
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Daniel Long
What is the strategy here? What are we hoping for? Just joined PC Alert.
Thanks.
DL
Linda McDonough
Daniel,
Read the alert on Facebook (NYSE:FB) to see my analysis. I expect the stock to weaken during its presentation at Morgan Stanley’s media conference this week. As you can see, the stock has roared higher with the market. However, I do expect it will drop coincident with any focus on the softening usage trends for its basic products.
All Alerts (found under the so-named tab at the top of this page) provide the details of my trade strategy.
Best,
Linda
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Madhu Talluri
I was a bit delayed in placing my order, filled today. FB April 20 $180 Put at $4.8 (stock had moved up by the time I got to placing the order, so I went with a slightly higher strike price)
Stanley
I am curious as to what price you paid on the 180 FB put.
It is over 8.00 now.
I may readjust my thinking with future buys with PC.
Thanks
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Daniel Long
Since FB is not in the portfolio and I don’t own it, either, is the play to buy the put now and sell it after the investor conference at higher price? I understand the rationale behind the FB price, but how are we making money on this trade? Thanks.
DL
Linda McDonough
Daniel,
You are correct. I am bearish on Facebook and expect the stock to decline. I do not recommend outright short sell trades for subscribers so the only way to play this idea is to buy the puts, which should increase in value as the stock falls.
The puts I suggested expire on April 20, 2018, and have a strike price of $175. That means if the price of FB falls towards that $175 price, before April 20th, the value of these puts should rise.
The stock has risen since I recommended the trade. Some subscribers, like Madhu below, use my analysis and choose their own strike price and expiration date. This subscriber chose a strike price of $180, which is closer to the stock’s current price.
Please let me know if you have any other questions.
Best,
Linda
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Jeffrey J
Linda – Will you make a recommendation when it comes time to sell the FB put? Thanks.
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J.s. Garrison
On 2/23/18, I bought the $180 put for FB at $5.20; could not resist selling this morning at $7.65 for a tidy 47% profit in a week (Wish I had held off on selling until the afternoon when the put was selling at over $9.00).
Incidentally, this was my first trade using Linda’s advice and I almost paid for the entire subscription fee on my 1st trade!
I hope the market likes TGT earning report next week. Linda, do you think TJX results this week and market reaction thereto bodes well for TGT next week?
Thank you, Linda.
Linda McDonough
JS,
I am thrilled to hear the FB trade worked out for you.
Most retail is doing pretty well right now. Some of that is due to the laws of arithmetic (circling around a few years of bad numbers) but I do think Target’s improvement is due to company-specific changes they have instituted. Part of this change is a new line of clothing so I like to see that companies like TJX and Gap (GPS) are doing well.
Best,
Linda
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Linda McDonough
Hello all,
Thanks for the great feedback on the FB trade. Please see the trade alert in which I have issued a sell recommendation on these puts today.
Best,
Linda
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