Buy Alert: Facebook (FB)

By Jim Pearce • April 13, 2017

TRADE INSTRUCTIONS
Date: April 13, 2017
Name: Facebook
Symbol: FB (NasdaqGS)
Type: Open
Limit: Buy below $143

TRADE TARGETS
Holding Period: 3 months
Target Return: 10.4%
Annualized Return: 41.6%
Target Price: $157
Stop Loss Level: $128

COMPANY DESCRIPTION
Facebook, Inc. is focused on building products that enable people to connect and share through mobile devices, personal computers, and other surfaces. The Company’s products include Facebook, Instagram, Messenger, WhatsApp, and Oculus. Link to company website.

TRADE RATIONALE
I have to admit to being surprised when our Rapid Profits Matrix identified Facebook as a short-term trading opportunity. Don’t get me wrong, I’m a regular Facebook user and have been fascinated by the stock ever since it went public five years ago, but it’s probably the most widely followed public company in the world (perhaps other than Apple) so the opportunity for share price inefficiency would seem minimal.

In this case, our algorithm noticed that FB appears undervalued based on its ability to grow earnings relative to revenues. FB is currently priced at 40 times trailing earnings, far above the S&P 500 Index multiple of 26. But its forwards earnings multiple of only 20 compared the index multiple of 17 is considerably less rich. Our model projects FB could run up above $150 within three months if it is next set of quarterly results is consistent with its recent history.

NOTE: I realize FB is an expensive stock, so using call options may be the better way to go with this one instead of buying the stock. For equity investors who are not comfortable with the inherent leverage of options I suggest you consider using a deep-in-the-money call option which will cost you much less than buying an equivalent amount of stock but still avoid most of the extreme volatility, and decrease the odds of a total loss if we are wrong, that accompany out-of-the-money options.

For example, yesterday the $125 call option expiring on June 16 could be had for about $16, or $1,600 per contract representing 100 shares (as opposed to spending $14,000 to buy 100 shares of the stock). If FB makes it to our target price by expiration date then the intrinsic value of the options would be $32, a gain of 100%. But if FB closes at the same price that day that it did yesterday, that option would have an intrinsic value of only $14 resulting in a loss of 13%. Breakeven on this trade would be at a share price of $141.

Stock Talk

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Roger Dehring

04/13/17 ‐ 12:12pm ET April 13, 2017 at 12:12pm ET

I jumped on board, Jim,

Bought JUN 135 calls and sold MAY 145 calls. Paid for part of the cost by selling same # of contracts of MAY 135/130 puts. Net debit was -$5.13.

If we have good earnings on the 3rd, will likely take part/all of this off the table.

black arrow

04/17/17 ‐ 11:53am ET April 17, 2017 at 11:53am ET

Hi Roger, And thanks for giving us a heads up.
I already had a june 16 130 call.
I decided to see how your idea might work for me – KNOWING typically pretty well is the answer.
I did not do entire thing.
I bt to open Jun 16 135 call and Sold to open the May 19 145 call which reduced my debit by 2.32.
Best Wishes, and I appreciate your valuable input

Jimmy Cook

04/17/17 ‐ 1:55pm ET April 17, 2017 at 1:55pm ET

Did the May 19 140 call this morning. Hope FB keeps on riding up.

black arrow

04/18/17 ‐ 9:09am ET April 18, 2017 at 9:09am ET

Hi Jimmy, The 50 day is above the 200 day, and 20 day above 50 and looking at the nice upward slope. RSI is positive. Note that Stoch RSI as well as CMT which stands for Chande Trend meter are both the products of the brilliant Tushar Chande. try this link: https://trends.etfmeter.com
and here is a link for my chart: https://trends.etfmeter.com
I am waiting for mkt to open to check my netflix call in case I may sell at a prof. Then time to hit the iron.

Jimmy Cook

04/18/17 ‐ 10:47am ET April 18, 2017 at 10:47am ET

Thanks for the chart link. I am only using 50 and 200 MA right now while I am learning to use charts. I was excited to see the crossover and the upward slope. That helps me keep a positive attitude. I am studying and trying to find the right combination of indicators to help me enter a trade at the right time. But there are so many it is hard to find the right ones.

black arrow

04/18/17 ‐ 11:29am ET April 18, 2017 at 11:29am ET

I think you know that the dashed centerline of Bollinger bands is the 20 day? There are various ways to try to get an idea when to enter a position. According to Art Hill from stockcharts FB is one of the “Big Five” and therefore important for QQQ. These stocks are all reporting soon he mentions so should give us some fireworks. FB reports May 3rd and in its list of good things it hit a new 52 week high in early April. As we discussed he mentioned FB is in a longterm uptrend. Now try this out on a chart you have draw a trendline from early down day in April down to most recent red candle. You will see yesterday was a trendline breakout to the upside this is good. A good iodea is to look for a Hammer candle see where price was 130.30 in Early February – what a nice climb up since then. A hammer could be red or white. Art feels that currently we are in a correction, but QQQ has faired better than most and FB is in the Q’s so not to worry there. Another indicator that can be used as an entry is MACD when histogram goes positive. The only reason I use PPO price percentage Oscillator is it is more sensitive than MACD macd lags a bit. PPO is similar but measures a %. Also the stoch RSI is faster moving which is why Mr, Chande came up with it. lets say you have the hammer from previous day and stoch RSI gets to 0.5 that can be considered a signal to buy.

black arrow

04/18/17 ‐ 9:25am ET April 18, 2017 at 9:25am ET

Whoops, my apologies wrong link for chart: http://schrts.co/qtcsCP
that should do it

black arrow

04/19/17 ‐ 9:50am ET April 19, 2017 at 9:50am ET

This is just a coincidence on this specific trade it had nuthin to do with SW; but I just sold my stand alone 130 JUN call and made a $363 pfoit.

Jimmy Cook

04/19/17 ‐ 9:53am ET April 19, 2017 at 9:53am ET

Yep, it’s hard to stay in the saddle when FB is going nuts. I am closing in on $100 profit with MAY 19 140

black arrow

04/19/17 ‐ 9:58am ET April 19, 2017 at 9:58am ET

Last 2 days was a Harami when the 2nd day is high up on previous day the 3rd day like today can be up. I was looking at an email telling me about 3 signs b 4 mkt crash, I have not gone to the write up so it may only be for educational purposes, but I saw a decent profit so took it off the table in just a few days.
Be careful, watch price action
Cheers

Jimmy Cook

04/19/17 ‐ 10:01am ET April 19, 2017 at 10:01am ET

Yep, watching it close. If it hits $143, I’m outta here.

black arrow

04/19/17 ‐ 10:09am ET April 19, 2017 at 10:09am ET

someone just bt 300 shares so could happen just cant tell ya what day. Watch the part of the candle called a wick at tip. If it continues to grow it means selling is pushing it down. watch in a shorter time frame. Very often the high of the day is in by now. Look at other recent days where wick was long at the top. It has not gotten to the upper band too often, but 143 is certainly a possibility.

Jimmy Cook

04/19/17 ‐ 10:12am ET April 19, 2017 at 10:12am ET

OK. Thanks for the advice.

black arrow

04/19/17 ‐ 3:48pm ET April 19, 2017 at 3:48pm ET

It hit the high of the day a bit after 11 AM it was the number you wanted doubt if it stayed there fer long.

black arrow

04/24/17 ‐ 12:26pm ET April 24, 2017 at 12:26pm ET

I just read from a VERY GOOD SOURCE RISK IS BACK ON
have a nice day Folks

Jim Pearce

04/24/17 ‐ 3:41pm ET April 24, 2017 at 3:41pm ET

Hi BA. Just to be clear, anything that might be construed as “insider information” is not permitted to be discussed on our boards, so please be sure to ascertain the original source of a rumor before sharing it (or acting on it). Thank you.

black arrow

04/24/17 ‐ 7:47pm ET April 24, 2017 at 7:47pm ET

Hi Jim, Got it. Was just back from 5 College tours in a long weekend, guess I wasn’t thinking.

Maria R

04/17/17 ‐ 4:53pm ET April 17, 2017 at 4:53pm ET

Hi Roger:
Thanks for the input. Tried you way 1 contract. Dipping my toes in.

Jim Pearce

04/19/17 ‐ 1:40pm ET April 19, 2017 at 1:40pm ET

Another smart trade, Roger. Hopefully you are already seeing some gain in it given FB’s price action over the past week. Good luck!

Rick

04/13/17 ‐ 2:28pm ET April 13, 2017 at 2:28pm ET

I bought Sept 140 calls and sold Sept 160 calls and brought my net investment down by selling Sept 130 puts and buying Sept 120 puts. Net cost was $4.75 DR.

I know that Sept is a long time out for the credit spread, but Sept had 100% gain seasonality while Jun was only 50%.

Madhu Talluri

04/15/17 ‐ 11:25pm ET April 15, 2017 at 11:25pm ET

I bought Jun 130 Calls , sold Jun 130 puts and sold April 28th 145 calls (before earnings). Net cost was $9.6.
If stock shoots up before earnings I will close out for a 50+% profit at $145 mark (3 week investment)
If not, I will be holding the Jun position through earnings.

There is a large open interest at the Apr 21 140 calls, so the stock may be pinned there this week.

black arrow

04/17/17 ‐ 11:36am ET April 17, 2017 at 11:36am ET

Hi Madhu, coincidentally I bt Jun 130 calls myself. I notice that you have also sold same strike and month Put. This translates to me as a Straddle – correct?
Best Wishes for your success

Robert Denton

04/18/17 ‐ 9:44am ET April 18, 2017 at 9:44am ET

knowing nothing about options , im very reluctant jumping into your option suggestion
and per your suggestion when I joined Investing Daily, I only set aside $12,000 for this account . I now have positions in F, STM, and TSM so I feel I must pass on this one. I know you said to NOT pick and choose, but follow all buy alerts but this taps me out

Frank B. Las Vegas

04/19/17 ‐ 11:55am ET April 19, 2017 at 11:55am ET

Jim we did take part , thank you! Frank B.

black arrow

04/19/17 ‐ 4:03pm ET April 19, 2017 at 4:03pm ET

Here is a Tom Bowleyism, in the for what its worth dept. Tom claims it is not always correct. From the 15th of April – thru the end S&P 500 tends to be down. He was a CPA and is a numbers guy. I would like to thank both Jim Pearce as well as Roger D. I tried part of your trade as I wrote Roger, and decided to pull the ripcord on that one as well. There I was ‘floating safely back to earth’ Moolah in hand. Tomorrow I head out to a College tour with my family and I am feeling good making a 15.60% profit in 2 days. That is why I am thanking both of you for helping my family, its a good feeling. What is annualized prof on that short termer Jim?
Cheers to all

Roger Dehring

04/25/17 ‐ 2:59pm ET April 25, 2017 at 2:59pm ET

Did a little maintenance on my FB position today, Jim,

With FB at nearly $147, decided to roll my MAY 145 calls to JUN 145 for a +$0.95 credit. Used -$0.33 of that to close my MAY 135/130 calls…netting $0.66. Yes, those puts will likely expire. But that is a small cost to have them gone in case the world/market goes in the crapper or they have a big negative surprise when they announce earnings next week.

I am now long a JUN 135/145 spread. Should their earnings be good and I can get close to $10.00 for this spread, say $9.50+, I will close it early and move on to your next trade.

Have a great day, everyone,

Roger

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