'Buy' Signal Could Be Flashing for This FAANG Stock – Schaeffers Research (blog)

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Facebook Inc (NASDAQ:FB), like its fellow FAANG stocks, has endured its fair share of ups and downs recently. After a relatively smooth ride higher in the first quarter, FB volatility ramped up in the the second quarter, as tech stocks went on a roller-coaster ride. While Facebook stock touched a record high of $156.50 in late June, it has since pulled back — and could be sending up “buy” signals. Below, we will discuss FB stock’s performance, and why it might be a good time to take take a look at short-term FB options.

To start, internet stocks have historically outperformed in the third quarter. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, the First Trust Dow Jones Internet Index Fund (FDN) — a fund that includes many FAANG stocks among its top holdings — has averaged a third-quarter gain of 5.34% over the past 10 years, with 70% of the returns being positive. 

Facebook stock has performed exceptionally well after recent pullbacks over the past three years. FB stock is now one standard deviation from its 80-day moving average — a historical “buy” signal. According to White, after its last nine tests of this trendline, Facebook stock has gone on to average a one-week return of 1.29%, and was positive 67% of the time. However, extending this data out to one month, FB boasts an impressive average post-signal return of 3.73%, and was positive 88% of the time. At last check, Facebook stock is 1.7% higher at $151.35. Another 3.73% rally would place the shares around $157 — in record-high territory.

facebook stock chart fb

Digging into FB’s options activity suggests recent buyers are bullish. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows FB with a 50-day call/put volume ratio of 2.11, which ranks in the 97th percentile of its annual range. In other words, options buyers have picked up Facebook calls over puts at a near annual-high clip in the past 10 weeks.

What’s more, for speculators expecting another bounce for FB stock, short-term options seem reasonably priced. This is according to FB’s Schaeffer’s Volatility Index (SVI) of 22%, which stands higher than just 32% of all other readings from the past year. This means near-term options traders are pricing in relatively low volatility expectations.

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