What Happened To META
$Meta Platforms, Inc.(META)$ Meta Platforms, Inc. (META), previously known as Facebook, has announced the layoff of an additional 10,000 workers this year, which caused its stock to rise 7.25% higher yesterday.
Reasons why META stock increase
First, layoffs are typically viewed as a cost-cutting measure that can lead to higher profits for companies. Investors often perceive such actions as a sign that management is taking steps to improve the bottom line, which can boost the company's stock price.
Additionally, the layoff announcement might have been viewed positively by investors because it represents a strategic move by the company to realign its workforce with its evolving business goals. META has been shifting its focus towards building the "metaverse," which is a virtual world where people can interact in a three-dimensional space. This strategy will require different skill sets than the ones currently possessed by many of the employees who will be laid off. The layoffs are therefore seen as a necessary step for META to achieve its long-term goals.
Lastly, META's stock price might have also been boosted by broader market conditions. The stock market has been on an upward trend lately, and positive sentiment towards the market can influence individual stocks, including META.
Why I think the Price Increase Might Not Last?
While META's stock price might have increased with the announcement of job cuts, it is uncertain whether this increase will last. The layoffs might be viewed positively in the short term, but investors could become concerned if they perceive the cuts as a sign of weakness in META's business model or long-term prospects. Additionally, the layoff announcement could cause anxiety among employees and negatively affect morale, which could lead to a loss of talent and ultimately hurt the company's ability to innovate and compete in the long run.
Furthermore, META's stock price has already rallied significantly since the company announced 11,000 job cuts in November 2022 from its 52 week low of 82.09. The stock has also been on a general upward trend since then, fuelled by positive earnings reports (more than 20%), a stock buyback, and broader market conditions. It is possible that the stock is near it’s peak and that any further upside is limited.
How to trade META Given the uncertainty surrounding META's stock price
It is important to use caution when trading this stock. One potential strategy is to buy put options, which allow the holder to sell the stock at a predetermined price (the strike price) before the option's expiration date. If META's stock price were to decline, the put option could be exercised, allowing the holder to sell the stock at a higher price than the current market value.
To support this trading strategy, technical analysis can be used to identify the stock's current trend and momentum. The relative strength index (RSI) is a commonly used technical indicator that measures whether a stock is overbought or oversold. According to META's day chart above, the RSI is currently at 70.9, which is in the overbought region and suggests that the stock might be due for a correction. Additionally, the stock is approaching its resistance level around 200, which could act as a barrier to further price increases. Therefore, I Intend to buy put options expiring in the next 2 weeks. $META%2020230324%20200.0%20PUT$ $META 20230324 200.0 PUT$ $META%2020230317%20200.0%20PUT$ $META 20230317 200.0 PUT$ .
In addition, the broader stock market has rebounded quite a bit in the last 2 days from the banks collapse fiasco, I doubt the market will move up higher by too much unless very favourable Producer Price Index figures are reported later.
Conclusion
META's announcement of job cuts has caused its stock price to increase, but it is uncertain whether this increase will last. While layoffs can be viewed positively in the short term, they could lead to long-term challenges for the company if they negatively affect employee morale or are seen as a sign of weakness in META's business model. The stock has rallied significantly in recent months and may be losing steam. As such, I plan to trade META by buying put options to take advantage of a potential correction in the stock price.
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