Facebook (FB) the Sequel

The Sequel to the first Facebook movie starring Justin Timberlake is writing itself now. And oh what an engaging script it is! The social network giant, with almost 1 billion users has lost almost half its stock value since its IPO in May. Many shares were sold last week just as we anticipated with the first lock-up lifted allowing insiders to dump their shares. Mark Zuckerberg has acknowledged that the decline in FB stock has taken its toll on employee morale. From the top of the ivory tower to the mail room, dreams have been shattered. Be careful what you dream of.

FB has other problems too. With many users moving to mobile devices FB has been wrestling with how to sell advertising on them. Then there is the question if advertising even matters as evidenced by GM’s pullout just prior to the IPO. Let’s venture further into the dark side. The next expiring lock-up arrives in October when trading restrictions are again cancelled for company insiders and employees freeing up 192 million shares and then again in November 1.2 billion shares which at that time Zuckerberg becomes an eligible seller.

So as option traders what does all of this tell us about our outlook for the stock? Trade a November Bear Put spread choosing strike prices with realistic downside expectations? What if Zuckerberg turns the helm over to experienced veterans to run the show? Maybe the purchase of cheap out-of-the-money calls come to mind to take advantage of a possible rally. The truth is, anything can happen and it will be fascinating to follow the ever evolving story of FB. 

So once again I ask, what do you think is in store for FB? Going through the world of options can be a very lonely place all by yourself. Let’s talk about it. I look forward to your comments. 

Peter B. Lusk