Facebook’s Advertisers Might Jump Ship, But Investors Won’t


Facebook (NASDAQ:FB) and Twitter, Inc. (NYSE:TWTR) are both struggling as brands pull their advertising from these platforms over policies regarding political speech.

The news hurt FB’s share prices last Friday, sending them over 8% lower, and I think that makes this an excellent time to sell a put write.

What Exactly Happened?

Two weeks ago, civil rights groups, including the NAACP and the Anti-Defamation League, called on companies to pull their ads from FB’s platform until the company regulates hate speech on the platform.

At first smaller companies, like Ben & Jerry’s and Recreational Equipment Inc. (REI) halted advertising, but last Thursday, Verizon Communications Inc. (NYSE:VZ) pulled its advertising, which is a major blow.

Then The Unilever Group (NYSE:UL) pulled its advertising on Friday. UL owns brands like Hellmann’s mayonnaise, Dove soap and Lipton, and the company spends more than $1 billion per year on advertising.

Then over the weekend, Starbucks (NASDAQ:SBUX) decided to join the aforementioned companies.

FB’s loss of advertisers will definitely drag its share price down, but I’ve always said FB is a company that knows how to make money. It has many options for dealing with this situation.

FB’s Far Out-of-the-Money Options are Pricey

FB dropped over 8% on Friday, and even with the market set to open higher, FB looks like it will head lower still.

Its problems are fundamental, and those fundamental issues are increasing the value of options with very low strike prices.

Right now, FB is sitting at its 50-day moving average, if it breaks through that level, it will have to contend with its 200-day moving average as support.

Daily Chart of  Facebook, Inc. (FB) — Chart Source: TradingView

Losing advertisers is certainly going to cut into FB’s revenue, but will it be enough to send it back to its mid-March lows? I don’t think so.

FB CEO Mark Zuckerberg is likely looking for solutions to FB’s problems right now, and I’d be surprised if the stock lost 37% of its value — putting it at its March lows — because of this situation, primarily because of the urgency surrounding it.

In fact, I’m recommending a put write with a strike price well above FB’s March lows.

Sell to open the FB July 24th $155 put at about $0.45.

Note: Be sure you are opening the weekly FB options that expire on Friday, July 24, 2020.

This is a high-risk trade, so take a small position.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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