Editors Note:

We were stopped out on Facebook on Monday because it was not done going down. I am reloading that position.


FB - Facebook - Company Profile


We tried to buy the dip on Facebook on Monday but the dip was not over. Shares fell more than $5 intraday to stop us out. The Nasdaq indexes were up strongly on Tuesday and I believe they will be favored over the next week as the Dow and Russell take a breather. I am going to try Facebook again and use the February option to retain some of the earnings expectation when we exit before the event.

Original Trade Description: November 12th.

Facebook disappointed on guidance when they reported earnings for Q3. Earnings were $1.09 compared to estimates for 92 cents. Revenue was $7.01 billion compared to $6.92 billion. That was a 56% increase from the year ago quarter. Monthly active users rose to 1.79 billion and beat expectations for 1.76 billion. That was a gain of 80 million users. Daily active users rose to 1.18 billion and beat estimates for 1.16 billion. More than 1 billion daily users are mobile users. That accounted for $5.7 billion in revenue or 84% of its total ad revenue compared to 78% in the year ago period.

The problem came from the guidance. The CFO said revenue growth rates will decline in coming quarters. The reason is the number of ads already running called the "ad load." Facebook has run out of places to display ads because they are all booked. The company also said 2017 would be an "aggressive investment year" as they grow capex "substantially" and ramp up hiring.

Facebook still makes a lot of money and they still have a lot of assets to monetize. Shares fell to the 200-day average on Thursday and that has been support since mid 2013. I believe buyers will take advantage of the sharp decline in order to establish new positions. Facebook will rebound and it will set new highs. Those highs may not be in the near future but that does not mean we will not see a short term rebound.

Earnings February 1st.

Buy Feb $125 call, currently $3.60, no initial stop loss.


No New Bearish Plays