Recently I have received a lot of readers’ questions on Facebook stock and whether I would consider it for a stock investment. Many readers wonder if Facebook stock as a stock investment will turn out to be another Google stock. Truthfully I do not have a clue and I missed out on Google stock since I didn’t understand at the time of the IPO how Google could make so much money to be able to support its stock price. In the end I did put selling against Google stock for a while and then I left it when it went over $200.00. In hindsight it was a big mistake. But alas when it comes to many stocks as a stock investment hindsight is a wonderful thing. basically looking back hindsight can teach me to be more careful or aware on the next stock investment.
Without more financial details and a lot more technical analysis of the stock, I cannot give a good opinion on whether Facebook stock will make a great stock investment. However I do think with the present selling of Facebook Stock there are some option strategies that might work out to be very profitable.
Stock Investment In Facebook Stock is Shooting Blind
Without adequate financial and stock technical information most investors are shooting blind when it comes to this stock investment. The problem with shooting blind is you could shoot yourself. The chart below shows the stock since it started trading a few days ago. Personally I hate hot stocks unless there are strong fundamentals behind it that I can read and analyze.
No charting tools will help with Facebook stock. As far as a stock investment goes it's almost anyone's guess what level the stock will bottom out at.
Stock Investment Through Options
Investing in Facebook Stock right now is a gamble so when it comes to gambling it is always a good idea to stack the odds in your favor and consider the best strategy possible to hopefully profit from the stock investment. In the case of Facebook Stock perhaps consider a straddle options strategy or a strangle options strategy.
Facebook Stock Call and Put Options As Of Friday June 8. Facebook stock closed at $27.10
Stock Investment Via Straddle Options Strategy
A straddle option trade on Facebook stock involves buying put options and call options at the same strike. For example, with the stock at $27.10 on Friday, the investor would purchase the same put and call strike price. Let’s consider the December $27.00 call options and put options. The $27 put options could be bought for $4.60 and the $27 call options for $4.50. Total amount invested is $9.10 per contract. 10 contracts would cost $9100.00.
Now the trade has 6 months before December options expiry to work out. For $9100.00 the investor gets to control 1000 shares of Facebook stock, profit from a move either up or down and can decide over the next 6 months whether or not Facebook stock is a good stock investment to hold.
Stock investment Via Strangle Options Strategy
A strangle option trade on Facebook Stock is almost like a Straddle option trade except the investor picks different call options and put options strike prices.
For example, looking at the Facebook Options prices from Friday June 8 below, the investor could consider buying the December $30.00 call options for $3.30 and the December $25.00 put options for $3.60. Total capital required would be $6900.00 for 10 contracts which would allow the investor to control 1000 shares.
As far as a stock investment, the Strangle Options Trade allows 6 months for the investor to decide whether Facebook stock suits their portfolio before December options expire.
Stock Investment Via Debit Spreads
Both of these trades can be turned into debit spreads by selling call options and put options further out of the money. This will reduce the cost of the trade further and increase the chance of a higher profit if the stock does not move much in either direction. I would think with Facebook Stock being new and having no track record, it would be best to stay far out of the money when selling the call options and put options. Basically with the debit spreads an investor is trying to reduce the cost of the straddle options strategy or strangle options strategy.
For example, on Friday an investor could have sold the December $18 put options for $1.05. He could have also sold the December $42 call options for $0.75. This would have brought in $1.80 and reduced the cost of the strangle option trade to just $5100.00.
It would have reduced the Straddle Option Trade to $7300.00.
By moving to a debit spread strategy the investor has increased the likelihood of a profit between June to December and if the stock stayed around $27.00, it would help to reduce his loss.
As far as a stock investment strategy goes, debit spreads on Facebook stock makes a lot of sense.
Tweaking The Facebook Stock Options Strategies
All of these strategies can be tweaked. For example, by watching the fast stochastics on Facebook stock I could try to time when to buy my call options if I felt Facebook Stock had further to fall at present. The same would apply for the put options. Why buy put options today if I think they will be cheaper tomorrow. By using market timing tools I can try to predict when the stock will move higher and buy my put options for less when the stock starts to rally back up.
What about tweaking the strategies if Facebook stock moves one way or the other? That might also be a great strategy. If Facebook stock falls to $18.00 I might consider selling the December put options purchased, early, and then buy to close the call options and roll them further out in time to give the upside more time to be right.
There are many tweaks that can be put in place on these Facebook stock options strategies. Rolling the options forward if premiums permit can sometimes be an excellent idea. Selling naked puts or naked calls just a month or two out in time for additional income is yet another great tweak.
Stock Investment In Facebook Stock Through Options Strategies Summary
There are many trading options ideas that can be used with Facebook Stock which gives the investor time to consider whether Facebook stock is a good stock investment or perhaps in the long run, the investor would prefer to continue to use options strategies rather than ever own the shares.
When it comes to a stock investment, sometimes the better investment is no stock at all.