Update: Faceplanted – FB

by Dan October 11, 2018 12:41 pm • Trade Ideas

On September 18th I wrote a post detailing why I thought Facebook (FB) could break its late March low (Further Facebook Faceplant?), near term, but then set up to be a decent long:

WIth the stock down a whopping 26% from its all-time highs made in late July, just prior to their Q2 earnings, I now wonder if another leg lower, back towards the 2018 lows, and possibly lower sets up for a fairly epic long entry? Wall Street analysts have massively reset their forward expectations for eps, sales, and margins based on the company’s guidance given in July. At this point though expectations might be low enough that the company might be able to beat them going forward, which would make the stock very cheap trading at 19.5x expected 2019 eps growth of 15% on 24% expected sales growth, which would be close to $70 billion with gross margins north of 82%. But I suspect it will be prudent to wait for two events, the company’s Q3 call that should come the last week of Oct, and then the result of the mid-term elections in the first week of Nov to make sure the company has visibility into their business and the practices of participants on their platform. Investors on the call will take a specific interest in user behavior, advertiser spend, margins and a general level of confidence that the company is self-regulating its platform to avoid the involvement of the federal govt.

This morning the stock made a matched-low, nearly to a dime, and reversed:

That looks like a healthy bounce, but in my mind lack capitulation, that we might not get to their Q3 results due Oct 30th.

In the post, when the stock was $161, I detailed a bearish trade in Oct expiration to play for a re-test of the low:

-Buy to open 1 Oct 160 put for $4

-Sell to open 1 Oct 145 put at 65 cents

This mornings price action leads me to believe that if we don’t get a continuation in the market sell-off than FB shares might have found support as investors wait for the Q3 report. At this point this morning’s hold makes it attractive to close this position with the stock at .

Action: FB ($153.50) Sell to close Oct 160 / 145 put spread at $6.30, nearly a double.

I would love to see FB guide lower on the Q3 print and see the stock overdone and look for a long entry….