Think Facebook (FB) is a buy? Think it’s a short? Here’s your trade. You can win both ways! (March 21, 2018)
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Let’s just zoom in on Facebook ( NASDAQ: FB ) here. I am sure you know what the issues are with Facebook ( NASDAQ: FB ); somebody got hold of their data that they are not supposed to get a hold of. There is kind of a big back story here, spoiler alert, it wasn’t just the data at Cambridge Analytica or whatever it was, they were doing the same thing in the 2012 election, just on the other side of the aisle. This isn’t what some will make it out to be. It is a big deal and basically, you got screwed. Because I am assuming, if you are watching this, you are a Facebook ( NASDAQ: FB ) user; everybody seems to be except Detective Spooner here.
The bottom line is, everybody is really, really ticked off about this. It is amazing to me because to me you have got to always assume that all your data is going to be used by whoever is going to pay Facebook ( NASDAQ: FB ) money; they have like a half a million market cap. Come on man, what do you think, they all that money from advertising and selling banner ads? I don’t think so. But still, everybody is tweaked about it.
Now, Wall Street, I just read an article on CNBC so take it with a grain of salt, a lot of folks are saying, “This is overblown. Nobody cares; this is a buying opportunity, I am buying more.” And that’s fine; you can buy into that if you want. Just know this: (I am showing you MarketSmith here) The number of funds that own Facebook ( NASDAQ: FB ) in March of last year, almost 3,700 did. Then the following quarter 3,800. September, 3,900 and then almost 4,000 in December. So the number of funds that are buying Facebook ( NASDAQ: FB ) is going up.
Now keep something in mind, there is all kind of funds. There are the smart funds and there are the dumb funds. So just because you see the number of funds that are owning a stock moving higher isn’t necessarily a good thing because it could be the smart funds selling to the dumb funds but there are more of them than there were before. So what I am saying is you take this with a grain of salt too. But what you can’t take with a grain of salt is the fact that there is a vested interest by everybody including you and me, that this stock stay higher. Because if it starts moving lower that is kind of a “canary in the coal mine” for the whole market.
My sense is that ultimately all this stuff will pass. Everybody will forget about it. A lot of you probably already have. Some of you are probably watching this video on your Facebook ( NASDAQ: FB ) platform. Go figure. I think it is all going to wash away. But here is where there is an uncertainty: People are weird and they sometimes get turned off by something and decide that’s it. So if there is an acceleration in migration away from Facebook ( NASDAQ: FB ) ultimately this stock could be done. However, an economist has more of a chance in getting a prediction right than I have in making that prediction. There is just no telling what is going to happen. So you have to trade the “now”.
Here is what my “now” trade would be: These lines here, these are spreads that I have on at Option Market Mentor to capture the in between here. This was the low from yesterday and then I would say this was where the stock was before the news became known. By the way, they knew about this back in 2015 they just didn’t say anything. That kind of smacks of Equifax ( NYSE: EFX ) where that idiot CEO Dick Smith, aptly named I am sure, left in shame with I think, either 70 or 90 million bucks. A million here a million there, who cares? While I am looking at it, Equifax ( NYSE: EFX ). All of your Social Security numbers and your private data got stolen; 137 million. The stock gapped down and kept going. It fell down 37 percent, but where is it now? Ultimately, at one point it was down 10 percent from where it was before. So this stuff recovers.
Facebook ( NASDAQ: FB ), this is not that. I am not bullish on Facebook ( NASDAQ: FB ) I just am not bearish. I don’t think the stock goes below this level. I think it just stays right here; I think it farts around for a while. Zuckerberg, wearing his cheesy grey t-shirt, with his short hair, is going to make a statement. I think he is on CNN tonight and that will be a “puff” piece. In a week everybody is going to say, “Oh, it’s all good. Hey, everybody “like” my article on Facebook.” The stock is just going to continue to drift sideways. It will probably move up to new highs pretty soon.
What I would suggest doing is, if you are an option trader sell the 160.00 puts; buy the 150.00 puts. That protects you, it gives you some money if the stock either drifts sideways or moves higher. You can also sell some out of the money calls, some 180.00 calls and then buy some 190.00 calls. You are capturing the difference between the two. And then you are going to make money there if the stock stays in this trading range, right around here.
Or you can kind of “leg” into it. But just do one and then the other when the stock moves, if the stock moves in your favor. I have just really drawn the box around what I would consider the current trading range to be right around there. I just don’t think you have an edge, one way or another, buying Facebook ( NASDAQ: FB ). I certainly wouldn’t short it. It is going to be defended by everybody and his brother and sister so don’t short the stock. But I wouldn’t just be piling into this either. I would write some spreads around the outside and then hope that the stock stays on the inside.
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