OK, so it has been awhile. I apologize, as I was gearing up for Level I of the CFA exam. Afterwards I was in New York visiting people and just got time to write a quick post… to say..
I WAS RIGHT
Back in February, I had estimated Facebook’s value to be about $25 a share. And I thought that was being generous. At the close on 14 June, the shares were at 28.29. I noticed a big drop occurred on the day that the options on Facebook started trading. While options prices derive from the price of the stock, I believe it also works the other way around.
If people start driving up the price of puts (the right to sell a stock at a certain price, think of it like an insurance premium you pay to get some value if your car gets in an accident or a tree lands on your house), then the value of the stock will go down. Likewise, if people crush the price of calls (the right to buy a stock at a certain price, or think of it like reverse insurance, like paying something so you can own a house at a reduced price if the cost soars for whatever reason), then the price of the stock will also go down.
There’s a reason why Warren Buffet doesn’t invest in technology stocks. And while Google and Apple may have crazy valuations. And while Google and Apple may seem sky high, at least they have some steady revenues and aren’t trading at 90x earnings.
Anyway, I mean to write some more posts, including one social media stock that I think is in more danger than Facebook and some global macro opinions. I also am thinking about writing a small opinion (treading carefully) on my CFA experience. I may write about my exam day experience and what I think about the level I material.