Facebook Stock - Why it's not another Dot-Com | OptionsANIMAL

Facebook Stock – Why it’s not another Dot-Com

February 13, 2012 / Greg Jensen

To invest or not to invest? That is the question, surrounding the news of Facebook’s upcoming IPO.

MENLO PARK, CA - FEBRUARY 01: A sign with the...
Image by Getty Images via @daylife

The argument, of course, is reminiscent of the Dot-com IPO’s of the late 90’s and the hype involved with the Dot-com bubble.There is fear that Facebook is a new Dot-com, and that is what’s keeping many investors at bay.  There are two key differences in this case that will make Facebook’s IPO a better offering.

The Facebook Difference
The first difference is the company itself.  With IPOs — as with all stocks — you want to see strong earnings.  Facebook (FB) is not a brand new company.  According to its initial filing with the SEC, the company had net profits of over $1 billion in 2011.  $1 billion.  Again…$1 Billion dollars.  This is not some great idea that someone has that they have sold to investment bankers that they think will work.  Facebook has over 850 million active users, and by the time they go public, they are likely to have over a billion active users.  This fact alone makes this IPO different from many out there. Facebook isn’t just a solid company, it is dominant.  It has a viewership that CBS, NBC and other major media channels can only dream of.  Has it peaked?  Is there any growth left?  As for users, the argument can be made that its explosive growth is done, but as for earnings growth, it has just hit the tip of the iceberg.  I don’t think Facebook has truly figured out how to optimally cash flow its viewership.  When it does, Facebook will really start to see earnings heat up.

Timing of Facebook’s IPO
The second reason this IPO will do better is due to timing.  The IPO’s from the Dot-com bubble were launched at a time when the economy, and thus the market, were reaching a cyclical top.  This frenzy drove stocks to ridiculously high prices.  When the economy slowed, these stocks earnings growth dried up (if they had earnings at all) and the ensuing drop in equity prices created pain for any investors contemplating investing into a stock soon after it has gone public.  That is clearly not the case this time around.  The economy is not at a top, but actually bottoming out and showing signs of improvement.

The main thing to remember with IPOs, is buying at the right time is crucial. It may be tempting to jump right into a stock on the day it goes public. But since the stock has no trading history a better strategy is to wait until it’s been trading for a while and forms a base or other pattern that offers a good buy point. Also, the bases formed by IPOs are occasionally shorter than what you’d look for in a stock that’s been trading for some time.

Options Trading Strategies
Another key reason that will help you this time around will be the use of options trading strategies like the collar trade.  The options instruments can help you approach an IPO that has uncertainty, and do so with much more confidence.  This of course means that you need to be patient enough to not enter the stock until it has options available to use.  That may not happen the first month.  In fact some companies spend several months before the demand for options is available to those stocks.  In some cases companies won’t allow options.  Berkshire Hathaway A Shares are an example.  With Facebook, I expect that options will be fast.  Google (GOOG) traded options the day after it went public.  Considering this IPO is arguably the most anticipated IPO in recent history, options should come quick.

Zynga (ZNGA) was one of those cases where you have benefited by not jumping in right when the stock opened for trading. Traders needed to hedge their trades with options, and ZNGA needed some time to form its base, as mentioned above.  I expect Facebook (FB) to be similar because there is a lot of hype surrounding the stock.  It may not have the pullback like ZNGA, but that doesn’t make my job of controlling risk any less important.

Facebook’s IPO is coming so now what?
Options strategies like the Collar Trade, are crucial for controlling risk in this market.  Not only do collar strategies provide for leverage and cash flow, but they also help you control risk. Options allow you to profit from potential IPO’s like Facebook, but do so without risking the drastic moves that many remember from the first round of Dot-com IPO bubbles.

Greg Jensen
OptionsANIMAL CEO and Founder

Enhanced by Zemanta

Options Trading Resources

options trading courses * trading education * investing education * option trading course * what is options trading * learning to trade options

Posted in

Greg Jensen

Join 500,000+ Investors

Get the latest class invites delivered straight to your inbox.

Our Students Love Us

Excellent
OptionsANIMAL4.9
Rob Helean
4 years ago
After many years of trying, I now have confidence I can make great passive income through trading. Without OptionsANIMAL, I doubt I would have ever got there. The instructors and courses are great! I have not had a losing trade since joining. What has being key for me are the exit strategies, when Plan A has failed, you have a Plan B, Plan C.... This is key to becoming a success. In addition, I have found the weekly review a great watch. A good pulse check for how my own trading is going!
Michael Canzoniero
1 year ago
Options Animal – A Solid Investment for the Right Person If you're seriously thinking about joining Options Animal, here’s what I’ve found to be true from my own experience. First off, this isn’t for everyone — and I mean that in a good way. Options Animal attracts a unique kind of member: curious, serious about financial education, and committed to growth. The membership tends to be smart, experienced, and inquiring. The community is intelligent, well-educated, and experienced, but also welcoming and supportive. People are friendly, down-to-earth, and genuinely interested in helping each other grow. If that sounds like your kind of group, you’ll probably feel right at home. That said, this program is best suited for investors who are ready to put in the time. The program expects you to study, apply what you learn, and take a hard look at how you're doing, you’ll find tremendous value here. There’s meaningful homework. There’s a process. But if you’re committed, it really does pay off. Discipline is also key. The instructors provide a clear, structured approach. When I deviated from that structure, I felt the consequences — but also gained important insight. Mistakes become learning opportunities here, and that’s part of what makes the experience so worthwhile. One of the big strengths of OA is how they teach you to be flexible. They teach you to adapt to market conditions, not just follow a static strategy. It’s clear they live by this principle, and their teaching reflects that. Most importantly, you’re never on your own. The team at Options Animal is always available, approachable, and incredibly generous with their time and expertise. Whether you're asking questions, learning from live sessions, or following along with real trade recommendations, you’ll feel supported every step of the way. Each instructor brings a different perspective, which allows you to find an approach that matches your style and goals. Now, about the cost: if you're thinking of it as an expense, it might not feel worth it. But if you see it as an investment in your financial future, it makes a lot more sense. You're paying for education, structure, and guidance that can really make a difference. You don’t need a huge portfolio either — the strategies can scale. A perspective regarding returns (ROI), the payoff improves with time. As your skills and confidence grow, so does your ability to generate solid returns. For me, this has absolutely been a smart investment — one that continues to pay dividends both financially and in terms of personal growth. For the right individual, Options Animal is more than just a program — it’s a powerful, ongoing advantage being a really solid investment — in every sense of the word.
Response from the owner:Thank you for sharing your detailed and insightful experience with Options Animal. We're thrilled to hear that you found value in our community, structure, and instructional approach. Your emphasis on discipline and adaptability perfectly captures what we strive to teach our members. It’s rewarding to know you see your involvement as an investment in your financial future and personal growth. We appreciate your feedback and support!
Scroll to Top