AI
Tuesday, December 11, 2012 11:53:21 AM
Options Strategies For A Facebook Decline
Overview by Josh Arnold.........link below
I recently wrote an article about Facebook's (FB) valuation and medium term prospects where I posited that the shares are a sell at current levels. If you missed my valuation discussion, you can read it here. My basic premise was that the combination of FB's inability to monetize mobile users, lockup expirations, and general valuation metrics are all reasons why FB is a sell at $27+ per share.
This article is not a rehash of the valuation discussion; rather, we are going to look at some bearish options trades to take advantage of a decline in Facebook shares if you agree with my bear thesis. The daily chart is below for reference.
March 2013 23/27 Bear Put Spread
My Profit/Loss graphs show results at expiration and calculations only consider the range of prices of $12 - $45 at March expiration. I am fully aware that some of these trades have technically infinite risk but I doubt that FB will rally another 70% from here to make a new all-time high by March.
This trade involves buying one $27 Put and selling one $23 Put. This is a very simple and cost effective way to express a moderately bearish stance on Facebook shares. It has limited risk ($1.60) and limited reward ($2.40) but allows the trader to get short without enormous risk to the upside. The limited risk does mean you need FB to fall below $25.40 by March expiration to make a profit. Here's the structure:
for more complete strategieslisted below click on link below
March 2013 23/27 Bear Put Spread
March 2013 23/27 Bear Put Spread and Short 32 Call
March 2013 28 Strike Risk Reversal
March 2013 Short (2) 32 Calls and Long (1) 28 Call
http://seekingalpha.com/article/1051651-options-strategies-for-a-facebook-decline
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Overview by Josh Arnold.........link below
I recently wrote an article about Facebook's (FB) valuation and medium term prospects where I posited that the shares are a sell at current levels. If you missed my valuation discussion, you can read it here. My basic premise was that the combination of FB's inability to monetize mobile users, lockup expirations, and general valuation metrics are all reasons why FB is a sell at $27+ per share.
This article is not a rehash of the valuation discussion; rather, we are going to look at some bearish options trades to take advantage of a decline in Facebook shares if you agree with my bear thesis. The daily chart is below for reference.
March 2013 23/27 Bear Put Spread
My Profit/Loss graphs show results at expiration and calculations only consider the range of prices of $12 - $45 at March expiration. I am fully aware that some of these trades have technically infinite risk but I doubt that FB will rally another 70% from here to make a new all-time high by March.
This trade involves buying one $27 Put and selling one $23 Put. This is a very simple and cost effective way to express a moderately bearish stance on Facebook shares. It has limited risk ($1.60) and limited reward ($2.40) but allows the trader to get short without enormous risk to the upside. The limited risk does mean you need FB to fall below $25.40 by March expiration to make a profit. Here's the structure:
for more complete strategieslisted below click on link below
March 2013 23/27 Bear Put Spread
March 2013 23/27 Bear Put Spread and Short 32 Call
March 2013 28 Strike Risk Reversal
March 2013 Short (2) 32 Calls and Long (1) 28 Call
http://seekingalpha.com/article/1051651-options-strategies-for-a-facebook-decline
c
