Promising Social Media Trades

Social media is no longer just a social phenomenon, it is a large and growing market sector. Social media stocks can be exciting and profitable to trade, but require more analysis to separate the wheat from the chaff. Three charts, covering eleven stocks over the period November 2016 through October 2017, will show the different characteristics of each stock – supporting conclusions for those that might provide profitable trading opportunities and others that should probably be avoided.

“Twitter, Amazon, Apple and Google” (below) show that two — Amazon (AMZN) and Google (GOOG) — are phenomenally close in price movements throughout the year. Starting at zero percentage price change on Nov. 1, 2016, they both gained approximately 25% through Oct. 31, 2017. As intertwined as their prices are, at first glance there would seem to be little opportunity indicated for spread trades between Google and Amazon. However, this is misleading because of their relatively large stock prices. 

“Amazon and Google” (below) shows the two stocks in greater detail and clearly presents several dates on which spread trades might have been formed for short-term profitable results. For example, on April 10, 2017, Google could have been bought for $841.47, while selling Amazon for $907.04. The next month, on May 10, 2017, Google was sold for $954.84, while buying Amazon for $948.95 for a net gain of $71.46. Although the two stocks have prices that are closely related, large stock prices make the spread trades interesting.

Apple (AAPL) separates from Google and Amazon around Feb. 1, 2017, surging over 10% higher over the next several weeks. Apple maintained this spread at the end of October 2017, reaching a cumulative 35% increase in stock price over 12 months. Of the four stocks shown, Apple seems to have the best chance for continued price gains. Although its price is relatively flat for the moment, Apple’s stock may just be waiting in the wings for the next product presentation.

Shortly after Apple showed its sharp increase in price in early February 2017, Twitter (TWTR) suddenly declined 20% at the first of May. However, by the middle of June, Twitter stock was at plus 10%. Twitter held this level, varying between zero and plus 10% through October 2017.

As we will see later, the options market considers Twitter to have relatively high volatility, which would be an advantage for a stock with a potential uptrend in price. Based on its history over the past year, Twitter does not seem to live up to this promising volatility, so the options market may just be viewing Twitter’s up and down cumulative percentage changes between plus and minus 20%, good volatility that has not been applied to an increasing price.

“Starbucks, Facebook and Match Group” (right) combines two social media stocks with the coffee restaurant. Ultimately there is no competition, as Facebook (FB) ends with a cumulative gain of 30% and Match Group (MTCH) with plus 40%, while Starbucks manages an increase of approximately 8%.

“Weibo, EBAY, Snap and Lumentum,” (below) presents an interesting chart in which a stock that seems to have little price increase, EBAY, actually gains more than 30% from November 2016, to the end of October 2017. The comparison with Lumentum (LITE) and Weibo (WB), both of which end up 80% make EBAY stock seem ultra conservative. 

Following its IPO on March 1, 2017, Snap (SNAP) declined a cumulative 60% through early August 2017, while ending down 40% by Oct. 31. The fact that Snap has risen 20% in cumulative price change from the bottom in August holds some hope for the future, but the chart also implies that Snap was overvalued by approximately 40% at the time of its initial offering.

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