2018 has been a difficult year for Facebook Inc (NASDAQ:FB) the company. However, the stock is soaring near all-time highs. This morning saw more headlines regarding privacy, rehashing the story that broke this year from Cambridge Analytica.
It is important to note that the negative reaction near as grave or noteworthy as it was when the news first broke out. I believe the media mislabeled the incident the first time, creating the impression that FB stock had a data breach. Facebook itself did not do anything wrong — it was one of their partners who actually broke the house rules.
Perhaps Facebook’s mistake was to not publicize the matter then and to not hang them in Town Square, so to speak. Nevertheless, it was a great opportunity to go long the stock on the dip and a profitable one at that.
Fundamentally, Facebook stock is cheap. It sells at a trailing-12-months 28 price-to-earnings ratio. This is a company that has over a billion active users daily and for hours at a time. I still believe that it is very hard to mess up such potential.
I do agree that there is cause for worry but only from a temporary perspective. This is an adjustment period Where management will have to navigate. But given their track record I am confident that they will.
Technically, it is hard to argue with a stock that is near or at all time highs. Much like Apple Inc (NASDAQ:AAPL) stock is now, FB stock will likely be higher in the future as long as markets don’t crash on a Black Swan event.
I am a cautious fundamental investor so I don’t like chasing stocks near their all-time highs. But given the fundamentals that FB has, I am very confident in betting on support for the stock holding through 2018.
Privacy is important, but I believe that the average user around the globe does not care about it as much as Americans do. So this issue will eventually die out from the headlines. Furthermore most users realize that the service is free from the sense of out-of-pocket expenses, but it does come at some price in relinquishing privacy.
I control what I let Facebook know about my personal information. I am totally comfortable them knowing the topics that interest me but not my social security number for example. And if I don’t like to relinquish any privacy at all then I don’t use the service.
From a trading perspective, I bet that if most investors would love to own Facebook at a 15% discount from current price. And therein lies the opportunity I share today.
FB Stock Trade Ideas
The Trade: Sell the FB Oct $160 put and collect $2.10 per contract to open. I have a 85% theoretical certainty that I retain maximum gains. Otherwise, I will accumulate losses below $157.90.
Those who want to mitigate the risk that comes with selling naked puts can sell spreads instead.
The Alternate Trade: Sell the FB Oct $160/$155 credit put spread. The spread has the same odds but would deliver 12% yield on risk. Neither trade require a rally to profit.
Click here for more my market thesis and get an ongoing free copy of my weekly newsletters.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
