Make Cash off What Facebook Is Building

by Joseph Hargett | January 11, 2013 8:49 am

Facebook (NASDAQ:FB[1]) has had a hot hand during the past several months, and the company is looking to ramp things up again heading into its fiscal fourth-quarter earnings report at the end of the month. Specifically, Facebook ripped a page out of Apple’s (NASDAQ:AAPL[2]) playbook by sending out press invitations to a company event at 10 a.m. on Jan. 15.

The catch phrase on the invites crooned, “Come and see what we’re building.”[3]

Facebook has rolled out a plethora of updates and features during the past year, many of which did not warrant their own press conferences. In fact, the last time Facebook held a media event, the company announced Facebook Gifts[4] and the companies that would be partnering with on the service.

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Apparently Facebook is doing something right, as shares have been on fire during the past four months. Specifically, since hitting a low of $17.55 in early September, FB has surged more than 76% — nearly shaking off the stigma of the stock’s horribly handled IPO. On Wednesday, FB broke out above the $30 area, a region that provided support in June/July last year. Look for the shares to once again utilize $30 as a support level.

Sentiment continues to improve for FB, with Wall Street doling out 23 “buy” ratings, compared to 10 “holds.” Meanwhile, the consensus 12-month price target arrives at $31.96 — a considerably modest premium to the stock’s close at $31.30 on Thursday. Any upgrades or price-target increases could provide additional upside pressure for FB shares.

Elsewhere, short sellers appear to be jumping ship in droves. After peaking at 95.3 million shares in mid-November, short interest plunged 72% to 55.16 million shares. Should this short-covering trend persist, it could provide a continued tailwind for FB.

Still, given the growing optimism surrounding Facebook and the company’s firming fundamentals, traders might want to consider a bull call spread as a way to profit from the stock’s strong price action. With FB trading just above $31, a February 31/33 call spread looks promising.

At the close of trading Thursday, this trade was offered at 89 cents, or $89 per pair of contracts, placing breakeven at $31.89 — a gain of about 1.9% from yesterday’s close. A maximum profit of $1.11, or $111 per pair of contracts, is possible if FB closes at or above $33 when February options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

  1. FB:
  2. AAPL:
  3. “Come and see what we’re building.”:
  4. announced Facebook Gifts:

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