Facebook Inc: Now’s the Time to Short FB Stock!

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“Like” the experience at Facebook Inc (FB). For Facebook stock however, it may ‘finally’ be time to like a low-risk and well-priced bearish spread for profit-taking over the next several weeks.

Facebook Inc: Now's the Time to Short FB Stock!

We’ve personally liked Facebook stock in the past. In more recent months however, concern regarding one the market’s sacred cows has admittedly cost our own accounts under management roughly 1%.

Were we wrong or just early in Facebook stock? Critics might state a loss in FB for being early is still wrong. As the saying goes, the market is always right — that is until investors do knock Facebook stock off its pedestal.

If investors were to turn their back on Facebook stock, we suspect all would be either forgiven, forgotten or even lionized, for those warning of something fishy while others were still smelling roses. Think Michael Burry from The Big Short and how that all played out.

Maybe Facebook isn’t altogether the next Myspace or in the vein of AOL as others have begun to muse. But make no doubt about it, as InvestorPlace’s Lawrence Meyers recently noted, Facebook stock is extremely pricey and its revenue model is certainly at risk.

Facebook Stock Daily Chart

06-23-16-fb-stock-chart
Source: Charts by TradingView

Risk is also apparent on the Facebook stock daily chart and appears to set up FB for profit-taking in the near-term.

Getting past a still-obvious larger uptrend, shares of FB have formed a bearish flag consolidation with the 50-day simple moving average acting as pattern resistance.

Should investors begin to pressure Facebook stock (and the Brexit vote is getting a head start on this Friday morning), $106.50 – $109 would be the first area of support. The price zone is backed by an earnings gap fill and the 200-day simple moving average.

Net, net there’s ample downside for even modest profit-taking within Facebook stock’s uptrend versus upside risk for bears to ply their trade with short positions.

Having said that, by using Facebook stock’s options market, a trader can further mitigate risk while constructing a nice reward profile.

Facebook Stock Bearish Butterfly Strategy

In lieu of shorting Facebook stock and facing the potential threat of larger-than-expected gap risk, a bearish, long August $115 / $105 / $95 put butterfly looks approachable.

Currently priced for $2.05 with FB at $114.45, the spread maintains an expiration profit zone from $97.05 to $112.95. The area is denoted in the supplied Facebook stock chart.

In a perfect world, Facebook stock would land on $105 at expiration and the spread would maximize its near-400% return of $7.95.

More pragmatically, while the FB butterfly offers a very attractive risk-to-reward ratio, without money management, the holding experience could prove illusory.

Our suggestion would be to assist the final outcome on this Facebook stock spread by reevaluating the position if profits or losses amount to 50% of the initial debit.

Mr. Tyler does not own positions in any of the securities discussed in his personal or managed family accounts, but may initiate a position following the publication of this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/facebook-stock-fb-short-now/.

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