$FB the pull backs have worked nicely over the last 18 months. The stock has put in a few head and shoulder tops that resulted in sharp moves lower. The recent spike down from record highs sent the stock to long term support at $72. Much like each pull back in the S&P 500, every single dip for Facebook's stock has been a tremendous buying opportunity. Until that theme changes, the money is made following the trend.
Options traders are more bullish than ever on Facebook , even after a 57% surge over the past month.
The number of existing call options--contracts that benefit from a rise in shares--has soared to a record in the days since late July, when a surprise success in digital advertising revenues helped shares of the social media company trade above their initial offering price for the first time since the company's first day of trading.
"With the earnings report, Facebook showed it's actually a good company," said William Lefkowitz , options strategist at asset management and brokerage firm National Securities . "The stock has come back into favor, but some investors are still nervous, so are looking to options rather than buying the stock."
Facebook shares fell 0.5% to $38.68 Thursday. That is 1.3% below Monday's record close of $39.19 . At its IPO last May, Facebook shares sold for $38 . Last Friday, Facebook shares closed above the offer price for the first time since the launch.
When an investor buys call options, which grant the right to buy shares at a set price by a designated date, the maximum loss is the premium paid for the option no matter how far shares may fall.
As of Wednesday, there were 2.05 million call options outstanding. That number has grown 46% from last month's peak of 1.4 million contracts. The previous peak was 1.74 million call contracts, reached on Feb. 1 .
Stephen Burns , who manages a supermarket and runs an options trading blog from Nashville, Tenn. , started using weekly in-the-money call options after Facebook reported earnings on July 24 . At the end of last week, he moved his position into the follow week's options. As of Wednesday, he held $38.50 call options that expire Friday.
"I love the risk-reward of playing slightly in-the-money call options versus buying stock," he said. "The options are so liquid, and I get so much leverage with so little capital risk."
Mr. Burns said he had been interesting in Facebook's business model before its IPO, but the number of shares created at the time and the value of the launch kept him from buying. Facebook shares finished 23 cents above the $38 offer price in their first day of trading last year, before falling as low as $18.06 in August.
More than twice as many bullish call options traded Wednesday than put options, which profit from a decline in shares. Put options grant the right to sell shares at a set price by a designated date.
The most active options Wednesday included "in-the-money" options expiring at the end of the week, next week or in September. In-the-money call options have a strike price below the current market value of the shares. To profit, the stock must rise above that strike price plus the cost of the option.
The four most-actively traded Facebook contracts Wednesday were weekly $39 and $38.50 call options, August $39 calls and September $38 calls, according to options-data firm Trade Alert LLC . August options expire at the end of next week, while the September contracts expire Sept. 20 .
To be sure, the number of bearish contracts has seen growth as well, though at a slower rate. As of Wednesday, the ratio of bullish bets to bearish ones stood at 1.44 to one, according to Trade Alert data. That compares to a ratio of 1.33 to one a month ago. Yet, the number of puts outstanding remains about 18% below the peak of 1.74 million contracts seen last November, when shares were trading at $23.56 .
The option with the most contracts outstanding was January $25 put options, which grant the right to sell at that price, 36% below Wednesday's closing value. There were 185,906 contracts outstanding as of Wednesday, more than twice the next most active contract, January $32 call options. About 64% of those put contracts were opened prior to June.
What a crazy day yesterday as the market sold off all morning and $SPY dropped under $141 for a bit. We did recoup some the rest of the day, but was still a big down day as the DOW dropped 250 pts. I rarely use the DOW to describe the overall market but 250 pts down sounds better then 1.39% for the SPY. I was saying it on audio yesterday that it did not feel like a big down day. On typical 1.5-2% down days, you will find momentum and growth stocks down 3-5%, and most of them were less then 2% down, even, or even green. Obviously DOW components MMM and Dupont dragged on the index with horrible earnings. We did have quite a few earnings reports yesterday. FB and PNRA stole the show with expectation beating earnings. NFLX and BWLD missed expectations, with both stocks down near 10-15%+ yesterday and this morning. We shall see where the market takes those stocks but I will not be buying any positions into BWLD or NFLX.
Currently hold SODA 45 calls, COH 62.50/65 calls, PNRA 185 C, BWLD 100 calls(worthless), NFLX 90/100 calls (WORTHLESS), WDC 35WC and 40 Nov C, WHR 100 calls, SINA 60/62.50 calls.
Positions I am looking at for open:
|Stock||Call/Put||Strike||Expiration||Closing Price||Entry Price|
|FFIV||Call||$120||NOV||.25 x .30||0.30|
Anytime FB has run-up or even pre-IPO, social stocks were a good play. Think $SINA and $LNKD get serious mojo at the open so will be looking for calls quick on both. Will not chase LNKD 110 but will try for the fill. FFIV chart looks exactly like PNRA and think the fade means cheap calls, will try for NOV so have time if the move is not big. Still like WYNN and will look for the NOV 130s, as those positions are actually cheaper then before they announced the date, while the OCT positions are now more expensive(makes no sense which is good for us!).
Will hold my COH, WDC, and WHR calls for the near term.
Also, make sure you read my take on SODA : https://www.optionmillionaires.com/2012/folks-have-the-story-wrong-on-sodastream-soda-or-do-they/
Lets have a great day!
Another day, another 4 1/2 year high hit. Think this will be the story through september. Yesterday was a solid day with a last minute sell-off, which seems to be the action as of late. The Germany concerns about ratifying the ECB bond purchases became a non-issue and stocks are moving up this morning. I am probably going to be reducing positions heading into Thursday as I think the risk for a sell-off is very possible, although i think we ramp higher.. but you have to minimize risk!
AAPL releases details on it's new iphone and should provide the stock with some WILD swings. Will not be playing it at all as its anyones guess what happens there.
Plays im in or watching:
MAKO - Still like the $20 calls as i think the stock breaks the $18.50 resistance from yesterday and doesnt look back. I maybe wrong but we have 8 days till expiry. Risky play..
LNKD - thought it would need a day or two breather, but looks like it may get some legs on FB move. Will look for $120/$125 sept calls.. either this week or next
AIG - think the anchor holding the stock down is gone, and it will move to $35 or so. Already have the 33.50 and 34.50 calls. May add to the 34.50s if they are cheap.
SODA - have the 40/42.50/45 Sept calls. I still like her and with GMCR still brewing, should see continued upside.
Others I am in : PCLN 650 calls/ WYNN 110 calls / NFLX 62.50 calls / CMG $370 calls
Thats all for now! Lets have a great WEDNESDAY!!!!