Facebook (NASDAQ:FB) stock options are scheduled to open on Tuesday, May 29, 2012. In my opinion, this is going to represent a great opportunity to use stock options on a daily basis, where volatility should be robust. This is the type of stock that rolls around once every ten years, where price movement will fluctuate wildly on a daily basis, which is exactly what I look for with my daily options trading strategy. You can read more about the strategy here. Please check out all of the articles I have written on this strategy, plus the comment section. They provide excellent questions I have received and answered continuously during that time.
Since Facebook stock options open about a week from now, it is only speculative to induce that the bid/ask spread will be wide when trading begins on them because of the uncertainty. However, I am not too concerned by this as I would be with other stocks. The one main reason is that liquidity will be sufficient. Liquidity usually brings a fair price, and I am expecting that with the Facebook options.
There has not been a bigger company going public since Google (NASDAQ:GOOG) that has got as much attention as the Facebook IPO has. However, I strongly recommend not putting a large investment into buying Facebook shares.
While I personally have a Facebook account, I have never once clicked on one of their ads. Ever. I will often ask friends and associates if they have ever clicked on one of their ads, and the answer is usually no, or maybe a couple of times. Since ad revenue is how Facebook makes their money essentially, I foresee a major problem in the years ahead for this stock.
Facebook is not a Google. Google already had a stranglehold on the search and ad space. Google also did not offer nearly as many shares as Facebook has. Compare that to how many Google shares are currently outstanding and it is easy to see why there are some major issues going forward.
If anyone thinks that Facebook will not offer a lot more shares in the years to come, they have tunnel vision. This is my main concern: dilution. Yes, I am extremely skeptical on how Facebook will generate revenue, but the possible and highly likely dilution aspect of the stock must be taken seriously.
It was astonishing for me to see Facebook's stock price hit around $45.00 share on Friday, while a company as solid as Apple (NASDAQ:AAPL) keeps taking hit after hit with their shares on a daily basis lately. Apple is established and knows how to generate serious cash. Facebook does not ... yet.
It was interesting to see General Motors (NYSE:GM) basically drop their ads on Facebook right before they released their IPO. General Motors reasoning was that their ads are not being clicked. Considering how little of an investment General Motors made in regards to their Facebook ads, the situation must have been really bad. Sure, they will still use the "free" ads, but it speaks volumes to how little the ads are being clicked on. Please see more on this story here.
To summarize, please be extremely careful if you choose to make Facebook as an investment. You will be better served using Apple or Google as a long-term investment. I plan to trade Facebook for quick in-and-out daily trades using stock options, which should be the only way to trade this company as it stands now.
If you have any questions, please leave a comment or send me an e-mail. Thanks.
Disclosure: I am long AAPL.