It’s been a volatile year for Facebook Inc (NASDAQ:FB) stock so far in 2018. The company has struggled to control fake news proliferation, deal with rising competition from Snap Inc (NYSE:SNAP) and Twitter Inc (NYSE:TWTR) and manage a redesign of its News Feed. Throw in a market correction, and Facebook stock has been all over the place.
The shares have even been laggards among the famed FAANG stock group that led Wall Street higher for much of last year. As a result, many of the weaker hands have bailed on FB stock, but that doesn’t mean you should follow suit just yet.
It’s important to remember that, despite all the negativity in the headlines, Facebook is still a solid company with impressive growth. While both Snap and Twitter have seen a bullish resurgence in recent weeks, both are still struggling to monetize their user bases effectively.
In fact, both Snap and Twitter wish they had Facebook’s News Feed “problem.” Even with lowered expectations for ad revenue from the redesigned News Feed, Facebook is expected to see revenue growth of 36.3% this year and 26.7% next year. It’s a “problem” many of us would love to have.
But how does this play out over the short term? With the weaker hands now on the sidelines, FB stock can once again begin to trek higher.
Click to Enlarge Technically, the shares are resting on key support in the $81-$82 region. More importantly, $81.25 is a 50% retracement of Facebook stock’s January high and February low. The area is also home to Facebook’s 50-day moving average. Barring another blip in the market, this region should offer firm support for FB stock.
On the sentiment side, despite public grumbling from many Wall Street talking heads and analysts, the outlook remains quite bullish. For instance, Thomson/First Call reports that 31 of the 44 analysts following FB stock rate the shares a “buy” or better. The 12-month consensus price target also rests at $222.81, well above Facebook’s current trading range.
Even Facebook stock options traders are betting big on a bullish comeback for the shares. Currently, the April put/call open interest ratio comes in at 0.29, with calls more than tripling their put counterparts.
As for April implieds, options are pricing in a potential move of about a 6% for Facebook stock ahead of expiration. This places the upper bound at about $193, while the lower bound lies at $171.
2 Trades for Facebook Stock
Call Spread: With technical support just below the shares, the path of least resistance should lie to the upside. I’m looking for Facebook to address many investor concerns in the next month or so, with positive effects for Facebook stock. Traders looking to take advantage of a return to form for FB might want to consider an April $190/$195 bull call spread.
At last check, this spread was offered at $1.40, or $140 per pair of contracts. Breakeven lies at $191.40, while a maximum profit of $3.60, or $36, per pair of contracts — a potential 157% return — is possible if Facebook stock closes at or above $195 when April options expire.
Put Sell: Support should hold firm in the $181-$182 region. That said, you always want to give yourself a bit of a cushion. As such, a solid put sell option would be the April $175 put. This option was last bid at $3.80, or $3.80 per contract. As long as Facebook stock trades above $175 through expiration, traders pursuing this strategy will keep the $380 premium.
However, if FB trades below $175 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $175 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
