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Unusual Options Activity: Facebook (FB)

Posted: 04 Jun 2019 03:00 AM PDT

Traders are betting that Facebook shares will bounce after Monday’s decline.

Some traders are betting that shares of Facebook (FB) are oversold.

The social media giant sold off with the other tech giants on Monday on news that the FTC will look into the company. Shares fell over 8 percent.

However, some traders see the move as too much, too soon, and expect shares to potentially move higher from here, with bets on options expiring at the end of this week on June 7.

With shares around $171 thanks to the selloff, a surge in call option buyers at the $170, $172, and $175 strike prices show that shares are likely to end the week higher than here.

The $175 calls had over 12,300 options trade against 300 existing contracts, the $170 options had over 5,000 contracts trade, and the $172.50 contracts saw nearly 7,000 contracts trade.

This bet is clearly short-term in nature, given the short expiration date. With a one-day, 8-percent drop, however, it may add a nice chunk of change to the bottom line of some hedge fund or short-term trader if shares rally today or later in the week.

Action to take: As with the other tech giants, Facebook shares will likely rebound in the coming weeks. But you can buy an option going out a few months in case the recovery takes some more time, as recoveries often do.

The January $175 calls look attractive here, as a move in shares back to their old highs could potentially double.

Manufacturing Grows, But at a Slower Pace

Posted: 04 Jun 2019 03:00 AM PDT

Manufacturing grows in May, albeit more slowly than expected.

The ISM Manufacturing Index showed that the economy continued to expand.

This is the 111th month in a row that the index has shown growth, with little sign of an overall economic slowdown.

However, with a reading of 52.1, the number came in below expectations of 53.0. In the prior month, the index read 52.8.

The index is measured with a center of 50. Numbers under 50  indicate a decline, and numbers over 50 indicate growth.

11 of 18 manufacturing-related industries reported growth in May.

The index is built out of data from purchasing and supply executives, and includes other data as well.

Despite lower expectations on the manufacturing side, for instance, non-manufacturing data showed an uptick in business in the past month, although growth appears to be leveling off.

Furthermore, with unemployment near record lows, respondents are concerned about employment resources. Many sectors have reported the difficulty in finding talented labor to meet the needs of open positions, and a few sectors have noted wage increases as a way to fill the gap.

However, even with the tight labor market, these executives remain confident and optimistic about the economy in spite of this potential slowdown in activity.

Insider Activity: Sally Beauty Holdings (SBH)

Posted: 04 Jun 2019 03:00 AM PDT

Insiders are picking up shares at the cosmetics company.

Multiple insiders at Sally Beauty Holdings (SBH) have been adding shares in recent days.

Chairman of the Board Robert McMaster picked up 5,000 shares, shelling out over $73,000 of his own money to add to his take.

CFO Aaron Alt bought 1,500 shares, paying over $22,000 to add to the cosmetic supply company.

On top of that, CEO Christian Brickman bought 5,000 shares for nearly $75,000 as well.

This is a nice cluster of corporate insiders. The CEO, Chairman and CFO are typically the best informed about a company and its future prospects. When corporate insiders put their own money at work in shares, they see an undervaluation.

With shares of Sally Beauty having traded as high as $23.60 in the past year, shares look attractive here under $16. And on a valuation basis, shares trade at just 7 times earnings.

With a modest $1.8 billion market cap, the company could also be a buyout target from another beauty supply store or cosmetics company looking to improve its supply chain.

Action to take: Shares of Sally Beauty Supply (SBH) are a buy up to $16, with a target sale price of $20 in the coming months. That could be even higher if a buyout offer materializes or some other news event that sends shares spiking higher.

Tech Stocks Hit on Regulatory Concerns

Posted: 04 Jun 2019 03:00 AM PDT

Tech giants face increased scrutiny from the FTC and DOJ.

Tech stocks traded weakly on Monday, weighing markets down.

This comes on the heels of a report that Amazon (AMZN) faces increased antitrust scrutiny from the Federal Trade Commission. At the same time, Alphabet/Google (GOOG) also looks to be facing a closer inspection from the Justice Department.

With no specific allegations dropped about either company yet, uncertainty is rising for both companies as a result.

Amazon has been called a monopoly by some, however, even in its best-known market of online retailing, it has about half the market.

That market share has likely peaked, as brick-and-mortar retailers have upped their online presence in recent years, competing with Amazon head-to-head in things like free shipping and discounts for subscription orders.

Google, with its dominance in online searches and advertising, however, fits the traditional definition of a monopoly far better. The FTC has previously investigated the company as a monopoly, but closed the matter in 2013 without breaking up or otherwise recommending changes to its business practices.

All tech companies have become increasingly targeted by politicians in recent years due to privacy concerns, data breaches, and concerns over how little regulated these giant companies are.

Action to take: Given the big drops in these names today on news with no tangible teeth, consider January 2020 call options on both companies. Amazon $2,000 calls look attractive, as do the $1,100 strike price for Google. Or consider Amazon shares under $1,500 and Google shares under $1,000.
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