Trading Meta using options as the stock falls on big AI investment outlook
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Now might be an opportune time to sell 45-90 day strangles on Meta , given the recent earnings release, guidance and financing decisions, which have caused the stock to retreat from recent highs and led to an increase in options prices. Meta delivered strong Q3 2025 revenue growth — 26% year over year. However, it also led to higher expenses and increased capital expenditures. For example, full-year 2025 capital expenditures (capex) are now expected to be between $70 billion and $72 billion. The company has announced that capex growth in 2026 is expected to be “notably larger,” and expense growth is expected to be at a “significantly faster percentage rate,” driven by infrastructure and cloud spending, as well as higher compensation expense (rumors have swirled that top talent was being offered nine-figure, multiyear contracts). In any event, investors are wrestling with mixed signals: on one hand there’s healthy growth. On the other hand, there’s escalating investment and cost commitments that may delay the AI “payoff.” Another issue has also created a bit of unease amongst equity investors — the idea that the company’s fortress balance sheet is being leveraged to make these investments. That is, these substantial investments are increasingly being funded with debt. At the end of FY2021, Meta had approximately $33.5 billion in net cash on its balance sheet. By the end of last year, the company had roughly $28 billion in net cash on its balance sheet. As of Sept. 30, Meta has approximately $6.5 billion in net debt. This is not to say that Meta has a liquidity problem at the moment. It doesn’t. According to the most recent balance sheet, the company has approximately $44.5 billion in cash and equivalents, but that’s less than the over $51 billion in total debt the company carries. This is the first time in its history as a publicly traded company that total debt exceeded cash. It is also now the first time that credit derivatives tied to the company’s debt have traded. Ensuring the risks associated with loaning money to Meta weren’t even a consideration before, but such is the pace and magnitude of AI spending that, for the first time ever, bond buyers are seeking it. For the moment, the cost of protection against a default within the next five years is low — about 45 basis points, or $4,500 per year per million, but that it is a consideration at all for Meta is something new. Decreases in net cash, or the emergence and growth of net debt for a business, raise the volatility of the stock price. The example I like to provide is for a house. If the value of a $1 million house rises (or falls) by 10%, its value changes by $100,000. If the homeowner has an $800,000 mortgage on the house, though, the equity is only $200,000. ($1,000,000 home value – $800,000 mortgage). Therefore, a 10% change in the home value is equivalent to a 50% change in the homeowner’s equity, given a $100,000 change in value over a $200,000 equity. For this reason, two-month options on Meta are now priced after they announced earnings at a level more consistent with what the company has typically exhibited before an earnings announcement. It’s clear that shareholders weren’t enamored of the company’s spending forecasts, so a near-term move back to the prior highs is unlikely. However, it is also true that the Street still anticipates roughly $34.50 per share in adjusted earnings in FY2026. Assuming one could purchase Meta at the six-month lows in the stock price of $572, that would represent just 16.5x forward earnings. One could sell the January 2026 590/725 strangle for ~$36 as of Friday’s closing prices, collecting more than 5.5% of the current stock price in less than 11 weeks, with the risk that one might be compelled to buy the stock below the 6-month lows, or sell the shares short less than 4% from the all-time highs. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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