Facebook Inc.: FB Call Options are Red Hot Today, Buy on the Dip

Facebook Inc. (NASDAQ:FB) with its market capitalization of $220.37B is one of the tech stocks with a bullish momentum that you’ll find inexplicably consistently predictable. The company has consistently beaten the consensus estimates on earnings in the last six quarters and last week, the company provided another metric that suggests more growth on the horizon.

It is easy to join Facebook critics to scoff about the prospects of Facebook in the short to medium terms. For one, it doesn’t appear that Facebook is anything more than a social networking website company. Hence, it is logical to surmise that Facebook might soon be going the way of the likes of AOL and MySpace who once rocked the social networking tech landscape before they retired into oblivion.

Nevertheless, Facebook, while primarily being a social networking company has evolved to become the global leader in the social networking market. It might interest you to know that experts have forecasted that the social networking market will reach $9 billion. Facebook currently has about 900 million active users and it has a total user base of almost 1.4B.

The Real Reason Facebook is Hot

Despite the impressive user figures that Facebook has, the company is yet to actively monetize its huge user base since the primary Facebook service is “free and will always be free”. For instance, if Facebook charges $1 per month from its 900 million active users will conservatively generate revenue of $500 million per month, which will translate into revenue of $6 billion annually. However, talks on how Facebook will monetize its huge user base is a discussion for another time.

Nonetheless, Facebook currently generates revenue from the ads that are placed on its site and the growing strength of its ad network provides additional reason to be optimistic on the stock. Facebook is currently hot because of the strength of its advertising network as it announced that it now has 2 million active advertisers on its network.

Two years ago, Facebook announced that it has 1 million active advertisers on its network. Six months ago, the company announced that it has 1.5 million active advertisers and last week, it announced that it has 2 million active advertisers.

For more perspective on the value of Facebook’s ad business, between April 2013 and June 2014, the number of companies with active Facebook accounts has soared from 15 million to 30 million. Hence, it is easy to understand how Facebook has been able to double the number of advertisers on its platform.

Facebook’s currently huge and growing monthly active user base provides advertisers a great opportunity to reach out to their target audience beyond what its normally possible by placing ads on traditional mass media. In fact, in June 2013, Facebook has 700 million videos viewed per month and the number of videos viewed per month on Facebook has soared to 12.3 billion by August 2014.

Hence, advertisers will be more inclined to place their ads on Facebook, the increase in Facebook ads will into encourage more advertisers to come on board Facebook to create an unending circle of revenue from ads.

How to Trade FB Options

Shares of Facebook are trading up 0.52% to $79.38 as at 12:59Pm EST today. In essence, the shares of Facebook are in an uptrend and the stock might be gearing up for a breakout above the $81 resistance ceiling that held late October, December and February. I recommend buying FB call options. I am especially interested in the FB Oct 2015 70.000 call (FB151016C00070000) if it drops to an asking price of $10.

— Daily Option Alerts

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