A little over a month ago, I wrote a post on trading Facebook Inc. (NASDAQ:FB) options in which I recommended call options based on my bullish position on the stock. You may want to read that post titled “Still on Facebook Call Options: Don’t Wait on the Sidelines” because it provides some background for today’s post.
Consistent Gains in Share price
When I wrote that piece on May 1, shares of Facebook were trading at around $56 per share and the stock has gained about 14.2% from that period to trade over $64 per share today. In that piece, I recommended the FB Sep 2014 65.000 call (FB140920C00065000), which was trading at about $4 per contract. That contract touched $6 on July 2, the contract then declined with general market conditions in the following days and the contract is trading back up with 20.44% gains at $4.40 per contract.
Going forward, for those of you that joined the trade on my recommendation in May, you should have already seen the potential for more gains on the horizon as Facebook nears the $65 strike price. Facebook is already trading up 2.74% to $64.56 around 12:40PM EDT today and we can expect the stock to touch $70 (at the very least) if it delivers an impressive Q2 2014 results on July 23.
If you had been sitting on the sidelines despite all my coverage of possibilities in Facebook calls, it is not too late to catch the wave to profitability. Below are some of the reasons behind my continued bullishness of Facebook.
Missed call Ads in Emerging Markets
Facebook with its 1.28 billion MAUs has impressive revenues from Ads; yet, its Ads revenue does not stack up proportionately to it huge user base. For one, about 80% of its active users are from emerging countries where access to the Internet is very limited. Hence, Facebook is not able to provide them with targeted Ads since most of them access the Internet from low-end internet-capable devices.
Facebook’s CEO, Mark Zuckerberg is trying to address this issue of low internet connectivity by trying to connect the world more efficiently to the World Wide Web through the Internet.org project. However, the Internet.org project is far away from its actualization and Facebook is taking another approach to get ads across to its users through the “Missed Call Ads”.
The missed call ads is designed to place a call to a brand advertiser at the click of a button by users from their Facebook account. The call will automatically be dropped and the user will receive a return call in which a sponsor will deliver his advertising message. I strongly believe that advertisers will be interested in these missed call ads and we can expect Facebook to record a surge in ads revenue based on this new product.
Re-positioning For Growth in China
You will remember that Facebook was kicked out of China about 5 years ago when the Chinese government concluded that activists were using Facebook to attract sympathizers to their causes. Facebook is not yet “legally” available in China but Chinese manufacturers desirous of international patronage continue to provide Facebook with ads revenue. The rumor mill has it that Facebook has leased an 8,600 square feet office space in one of China’s top business districts. If the rumor is to be believed, we can expect Facebook to start recorded an increase in its revenue from Asia.
How to Trade FB Calls
The FB Sep 2014 65.000 call (FB140920C00065000) that I recommended in May is still a viable option but the $4.40 asking price means that Facebook will have to reach $70 before you can start think of profits. If you are new to the Facebook party, I think you are better off buying the FB Jan 2015 80.000 call (FB150117C00080000) at the $2.37 ask price.
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