Option Trade 
Facebook Inc (NASDAQ:FB) Calls 
Monday, November 02, 2015

**OPTION TRADE: Buy the FB Jan 2016 105.000 call (FB160115C00105000) at approximately $4.50. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.80.

by Ian Harvey

November 02, 2015


Facebook Inc (NASDAQ: FB), which is engaged in building products to create utility for users, developers, and advertisers, is scheduled to release its third-quarter numbers after the market closes today, November 4th. Analysts forecast earnings of $0.52 per share on revenue of $4.36 billion. During the same period last year the company earned $0.43 per share on revenue of $3.2 billion. The stock is up 33.5% on the year.

Facebook has been hot all year, and if the company posts better than expected third-quarter results the stock will surge to a new all-time high. There has been already some strong results coming out of the tech sector this earnings season, and it is likely that Facebook will also post strong results as well.

Fears over the company's ability to monetize its mobile traffic have subsided, and the company has been reporting strong user engagement numbers. Last quarter, the company reported engagement levels of 65%, and this quarter is likely to be as good or better as a result of the company's solid growth in video. Therefore, expect a strong quarter.

Technical Details

Facebook will open today at 101.97.

The firm has a market cap of $287.31 billion and a P/E ratio of 103.63.

Facebook has a 52 week low of $72.00 and a 52 week high of $105.12. The company’s 50 day moving average is $95.33 and its 200-day moving average is $88.63.


Previous Earnings

Last quarter, Facebook stock rallied more than 15% in the month leading up to the earnings announcement. Then, those purchasing FB were rewarded with another batch of positive results as both earnings and revenue beat expectations.

Performance after the earnings announcement was muted, but that was no fault of Facebook earnings. Instead, you can blame the overbought conditions created by FB rallying so hard ahead of the announcement. The company merely played out the first half of the “buy the rumor, sell the news” scenario.

Future Earnings

Analysts expect the social media giant to post non-GAAP earnings per share of $0.52 on revenue of $4.36 billion, marking year-over-year increases of 21% and 36%, respectively.

Looking at growth in terms of MAUs, or monthly average users, in the previous quarter, Facebook posted a 13% growth in MAUs but analysts will not be surprised if this figure decelerates due to the law of large numbers as Facebook has more than 152 billion users.

Ronald V. Josey of JMP Securities mentioned that Facebook’s “video and product continues to strengthen, and overall online advertising growth is accelerating.”

For 3Q15, Josey expects the company to report 12.2 percent year-on-year growth in MAUs to 1.5 billion, with about 1 billion DAUs. Advertising revenue growth is expected to have increased 50 percent year-on-year, ex-FX, although “given the tailwinds in social, mobile, and video advertising,” Josey believes that the estimate could prove conservative.

Josey also expects the company to report EBITDA of $2.63 billion with a 48 percent year-on-year increase in cash operating expenses for the quarter.

Why Facebook?

The company continues to work toward improving its platform and expanding its reach. And Facebook continues to reach new milestones…..

• Recently, Facebook introduced “Search FYI,” aimed at allowing users to quickly find “what the world is saying about topics that matter to them.” The new feature includes better search solutions with personalized search suggestions. “With over 1.5 billion searches per day and over 2 trillion posts in our index, search is an important, long-term effort at Facebook,” the company wrote on its blog page.

• Facebook has also been working on a number of features for publishers to help them better manage and control their videos on Facebook. The company recently began testing new video-matching technology with a set of their partners. The long-term goal is to provide a comprehensive video management system for creators.

• On Sept. 30, the Facebook stock price popped 3.7% after Want China Times reported the site might soon be allowed in China.

• On Sept. 24, Samsung Electronics and Facebook’s Oculus introduced a new virtual reality handset.

• On Sept. 23, Facebook announced its widely popular photo sharing app Instagram reached a milestone 400 million users. Analysts say political ad demand will drive revenue growth at Instagram in 2016.

• WhatsApp founder Jan Koum announced on Sept. 4 that Facebook’s WhatsApp now has 900 million monthly active users.

Analysts Opinions

Ronald V. Josey of JMP Securities has reiterated a Market Outperform rating and price target of $105 on the company.

Also, Facebook‘s stock had its “buy” rating reaffirmed by JMP Securities in a note issued to investors last Friday.

The company has also been the subject of a number of other research reports:-

• Oct. 20: Jefferies raised its Facebook price target to $130 from $120.

• Oct. 15: Argus upgraded Facebook to “Buy” from “Hold” with a $115 price target. The firms says with the two most popular smartphone applications in the United States, FB has successfully made the transition from desktop to mobile. It also continues to gain traction on monetization through increased advertising, broadening its appeal to users, and entering new areas such as virtual reality and messaging.

• Oct. 2: Wedbush resumed Facebook with an “Outperform” rating and a $115 price.

• Sept. 24: Rosenblatt reiterated its “Buy” rating on Facebook with a $115 target based on strong core fundamental factors, as well as video and Instagram ad drivers. The firm thinks revenue growth visibility for Facebook into next year will further increase from video ads and a greater push from Instagram ads.

• Sept. 23: Axiom hiked its Facebook price target to $120.

20 analysts polled in the last 3 months are bullish on Facebook; none are neutral or bearish. The average 12-month price target on the stock is $117.68, marking a 15% potential upside from where shares last closed.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the FB Jan 2016 105.000 call (FB160115C00105000) at approximately $4.50. Place a pre-determined sell at $9.00.

Note: No protective stop losses added as yet -- but if you wish to do so make it $1.80.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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