From the Morning Report:
Of course, back in the US of A, it is Facebook's (FB) job to tell you what to think – not the state's! We will see how much of a bounce we get out of FB this week after the company lost $250Bn (25%) of their market cap on Friday. FB is left at $645Bn at $237 and they did make $40Bn last year so trading at 16x earnings shouldn't be such a crime, should it?
If we factor in the fact that AAPL cost them $10Bn with a policy change that FB will likely work around over time, I think we can expect $40Bn will be pretty normal going forward – even accounting for the pandemic easing and people having better things to do with their lives than start at Facebook all day (now we can go to the Metaverse instead!). I am certainly not saying FB is a bargain here but $200 would be less than $600Bn and even if earnings drop 25% from here – that's still a fair price (20x).
That means, selling the FB 2024 $200 puts for $30.60 is a very reasonable thing to do as it nets you into FB for $159.40 – 29% below the current price. Let's assume we REALLY want to own 500 shares of FB for $200. That would be $100,000 and we'd have to set aside $50,000 of ordinary margin to cover it but we'd collect $13,750 for it so let's sell 5 of the FB 2024 $200 puts for $30.60 in our Long-Term Portfolio and keep an eye on them – perhaps well add a bullish spread later as well.
UL/Rn - Funny, I never think about them but $52 is $132Bn and they make $6.5Bn a year so fairly priced here and the kind of stock that would make a good Butterfly play - as we don't expect them to go up or down more than 20%.
