Ever since whiffing on earnings, Facebook (NASDAQ:FB) stock has been a dog. The slide has transpired while its tech stock peers continue to flirt with record highs. That makes Facebook stock’s performance doubly bad. With support looming large, it appears shareholders may have a lifeline. To investigate, let’s take a look at the charts and see how the Facebook stock bulls and bears are trading around FB’s critical threshold.
At $159.33, FB stock has now fallen $59.29, or 27% from its peak. The descent does have a silver lining, however. For starters, as long as earnings haven’t been slashed by 27% alongside the price, Facebook is now cheaper than it once was from a valuation perspective. In other words, some of the fluff has been shaved from its price-earnings (P/E) ratio.
On the charting front, the daily trend is pointing lower with prices below the 200-day, 50-day and 20-day moving averages. A pattern of lower pivot highs emerged after its earnings gaffe, and it hasn’t stopped yet. That means sellers are in control of FB, their aggression only intensifying.
I see two positives that bulls can cling to. First, Facebook stock has now officially filled its earnings gap from April. These windows, once closed, often become support zones. Second, we have evidence that this is happening. Buyers have come to Facebook’s rescue multiple times now to defend support at $159.
With yesterday’s descent, FB is testing the floor yet again. Whether it holds once more remains to be seen, but from an options perspective, we can build trades around this threshold.
Pick Your Facebook Stock Poison
Here are two trades to consider. One for bulls and one for bears.
Facebook Stock Trade for Bulls: If you’re willing to bank on FB holding support or are betting that a visit lower will be temporary, then sell the Nov $140/$135 bull put spread for around 60 cents. The reward is 60 cents, and the risk is $4.40.
Facebook Stock Trade for Bears: If you believe support will fail or are willing to bet that Facebook will have trouble rising much from here, sell the Nov $180/$185 bear call spread for 65 cents. The reward is 65 cents, and the risk is $4.35.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
