June 24, 2015 | 2:27 PM by Fahad Khalid | fkhalid@jaguaranalytics.com

Unlock: Facebook (FB) Trade

(This idea was issued as Premium trade alert on June 12; Trade was closed today for $2.10 or +61% Gain)

Ticker: FB
Sector: Social Media
Current Price: $81.72
Target: $87.50
Stop Loss: $77.50
Time Duration: 70 Days

Trade Idea: Buy August 82.5/87.5/90 Skip Strike Call Butterfly Spread for $1.30 for less.

FB Chart

Unusual Option Activity – A large buyer of 4,000 August 82.5 calls paid $3.45 this morning within half-an-hour after the market opened. This is over $1.4 million bullish bet, and this follows buyer of 6,000 July (10) Weekly 86 calls for $0.57 last week and buyer of 10,000 July 85 calls for $1.15 on May 22. Go back a little further and on April 20 a large buyer of 12,000 September 85 calls paid $4.90 that also remains in open interest.

Fundamentals – Each time when we evaluate the fundamentals of a company, our main objective is to find disconnects between the reality and consensus view. Facebook needs no introduction and consensus estimates have a tight grip on where the company is heading in the short and long term. But one area that nobody is addressing yet is the launch of person-to-person payment that Facebook announced on March 18, allowing users to send money to friends using their Visa or MasterCard debit cards right through their Facebook account. We believe this provides a new leg higher to the growth story that is not fully modeled into consensus views. The service is currently in pilot phase and is expected to be rolled out across iOS, Android, and desktop interfaces over the coming months. We believe we will hear more about this in next earnings conference call. Driving the 500mn global Messenger user base into payments should create incremental long term monetization opportunities for Facebook and WhatsApp (700mn global users) as a larger payment or eCommerce platform. See this snapshot from Morgan Stanley:


Technicals – The chart is making higher-lows recently with each leg higher coming on strong volume. We think the stock trades back above $85 but we want a trade structure that reduces the cost and turns time decay and slippage in implied volatility into our favor. Hence we like August 82.5-87.5-90 skip-strike call butterfly spread for $1.30 or less. We are looking for trade to expand to $2.00+

FB Chart 2


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