Analyst: 3 Reasons to Bench This FAANG Stock

Despite a rocky week for FB, call buying remains accelerated

Deputy Editor
Mar 18, 2019 at 2:38 PM
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Negative attention from Needham has the shares of Facebook Inc (NASDAQ:FB) slipping today. The analyst downgraded the stock to "hold" from "buy," citing three catalysts: "the negative financial impact of FB's strategic pivot toward privacy and encrypted messages" and "growing risks of regulation," as well as brand injury after hard-to-block images of the recent New Zealand massacre. The move follows last week's app outages and executive departures, and has FB trading down 3.4% at $160.25, at last check.

FB stock gapped higher after earnings in late January, but pressure from the $174 level has capped any additional upside. The equity is pacing for its third straight day in the red, too, and is now testing two key areas of support. Specifically, its 50-day moving average and the $160 level -- home to its post-bull gap lows. 

FB Chart Mach 18

Despite this negative price action, calls have been more popular than puts. The equity showed up on Schaeffer's Senior Quantitative Analyst Rocky White's list of stocks that have attracted the highest options volume during the past 10 days, with names highlighted in yellow new to the list. Per the chart below, 1.12 million FB calls exchanged during this time period, as opposed to 686,445 puts. 

MAO March 18

That being said, FB's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has declined off its mid-February highs, suggesting slightly dampened enthusiasm from call buyers. Still, its current call/put volume ratio of 1.72 sits in the 64th percentile of its annual range, so there's still plenty of optimism that could unwind and place added pressure on the stock. 

Today, FB calls are still outnumbering puts. Roughly 223,000 calls have crossed the tape today, compared to 157,000 puts -- with total options volume running at twice the average intraday pace. Digging deeper, it appears traders are buying to open the weekly 3/22 162.50- and 165-strike calls, with "vanilla" traders expecting the shares to rebound north of the strikes before Friday's close.

Analysts following Needham's lead could push the stock southward, too. Prior to today's drubbing, 29 analysts considered Facebook a "buy" or better, compared to five issuing "holds" and not a single "sell" to be seen. Plus, the lofty consensus 12-month price target of $196.07 is at a 22.5% premium to current levels, and sits in an area not touched since just after FB's all-time highs in July.

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