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Buy the Trump Dip in Facebook Inc (FB) Stock

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Facebook Inc (NASDAQ: FB ) is making headlines this morning after the EU fined the social media giant $122 million for making misleading statements in its 2014 acquisition of WhatsApp . FB stock is also struggling with broad market selling pressure due to fallout from the political maelstrom swirling around President Donald Trump.

FB Stock: 3 Reasons to Buy the Dip In Facebook Inc (FB) Stock

Source: Via Stock Snap

Neither of these points, however, is a good reason to sell Facebook stock right now. For one, FB is still fundamentally sound, posting strong quarterly results in early May. And now that the EU matter with WhatsApp is settled, investors can finally put those concerns in the rearview.

As for the Trump debacle, FB stock was never really part of the whole Trump-trade anyway. In fact, many Facebook stockholders were concerned that the president's anti-immigration policies would hurt Facebook's ability to bring on new talent. Those concerns are now on hold, as with the rest of the Trump agenda.

Facebook Stock Chart

Click to Enlarge Technically speaking, Facebook stock has needed to blow off some steam for a while now. The shares were trading firmly in overbought territory in early May, and support at $150 kept much of the penned-up buying pressure from fully abating. In other words, FB stock was at risk of an extended sideways trend in the $150 region, with little hope of moving higher for the next month or so.

Now that the weak hands have finally been shaken out of the picture, FB stock can bank on support in the $145 region, home to its 50-day moving average, and begin to recover some lost ground.

Facebook's sentiment picture remains as bullish as ever. Currently, Thomson/First Call reports that 42 of the 46 analysts following FB stock rate the shares a "buy" or better. Additionally, the 12-month price target of $169.43 represents a premium of roughly 15% for FB stock. Depending on your outlook, this reading is either right in the sweet spot, or slightly undervalued.

Elsewhere, FB stock options traders remain bullishly aligned on the shares. At last check, the June put/call open interest ratio rested at 0.67, with calls nearly doubling puts among options set to expire next month. That said, this reading has risen during the past two months from a near-term low of 0.32 just ahead of earnings. Again, as with the technical picture, some excess bullishness needed to be worked out, and a 0.67 ratio is more in keeping with FB stock's historical activity.

Overall, June implieds are pricing in a potential move of about a 4.5% for Facebook stock. This places the upper bound at about $151, while the lower bound lies at $138.

2 Trades for FB Stock

Put Sell: While I'm convinced that FB stock will recover from this latest setback, mainly due to the fact that the Trump trade was never really part of the Facebook rally to begin with, I'm still concerned about how far the market will plunge as a whole should the Trump situation worsen.

As such, the safest way to take advantage of the current situation is to sell premium via out-of-the-money puts. Traders interested in such a strategy might consider a June $130 put sell position. At last check, this put was bid at 30 cents, or $30 per contract.

As long as Facebook stock trades above $130 through expiration, traders pursuing this strategy will keep the $30 premium. However, if FB trades below $130 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $130 per share, which, to be honest, would be a steal given Facebook's longer-term prospects for growth.

Call Spread: The recent Trump-induced drop in FB stock could also be seen as a buying opportunity. There is risk of additional broad market losses, but, given that the major market indices are off triple digits today and Facebook stock is down fractionally, the rally potential is still there.

If you're willing to assume a bit more risk, a June $145/$150 bull call spread has plenty of potential. At last check, this spread was offered at $1.99, or $199 per pair of contracts. Breakeven lies at $146.99, while a maximum profit of $3.01, or $301 per pair of contracts, is possible if FB stock closes at or above $150 when June options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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The post Buy the Trump Dip in Facebook Inc (FB) Stock appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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