Last week’s market pause ahead of Turkey Day helped set up breakouts galore. One of the top suspects heading into Monday is Facebook Inc (FB). The social media stock has been a superstar this year, one of the best performers amid an otherwise disappointing spell for stock owners. While the S&P 500 is up a paltry 2% year-to-date, FB stock has climbed 35%.
On the technical front, the action in Facebook shares has been solid so far in Q4. Dip buyers remain out in force, with an uninterrupted series of higher pivot lows having developed since the August swoon. Volume patterns in FB have been equally impressive. Accumulation days litter the landscape, showing persistent activity by institutional players.
Since gapping higher on its earnings announcement earlier in the month, FB stock has consolidated in bullish fashion. The pausing pattern has taken on the form of a symmetrical triangle, which sets up a clean breakout play when the bulls finally muster the strength to kick off the next advance in Facebook stock.
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The area to watch this week is the descending trendline resistance around $107.
FB options prices have descended notably since earnings. With an IV rank of 21%, implied volatility is officially in the lower quartile of its one-year range.
Not a bad time to be an options buyer.
A Pair of Options Plays on FB Stock
If you want to traverse the aggressive route, consider buying the FB Feb $105 calls for $6.75. The risk is limited to the initial $6.75 debit, while the reward is unlimited.
If you’re willing to cap your upside in exchange for less risk, consider instead buying the Feb $105/$115 call spread for $4. By selling the $115 call against the $105 call, you’re able to reduce the position cost, and risk, by about 40% to $4. And while the potential reward is limited, it’s still an impressive 150% return ($6).
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
