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The Dow and S&P 500 are holding their 200-day moving averages and are benefiting from the “safer money” that is moving into and staying in the market. Investors are looking for safety in some of the blue-chips and other stocks that pay steady dividends.
One tech stock that has performed well during the recent choppiness is Facebook (FB). Shares are within spitting distance of the 52-week and all-time high of $117.59 that was made in early February.
While there is risk of Facebook dropping to $110 over the near term, all of the major moving averages are in a strong uptrend. The 50-day moving average has crossed above the 100-day moving average, forming a “mini” golden cross. Near-term resistance is at $115, and I’m looking at call options to play a move above $114.75-$115.
Option premiums are pricey on Facebook due to the volatility and the fact that shares trade for more than $100. I usually like to trade options under $1.25, but I do see the potential for “in-the-money” call options on FB to make a decent return if shares maintain their momentum.
There are both weekly and monthly options available to trade on Facebook, but I’m targeting the April monthly call options this week. I would like to get them cheaper on a backtest to $110, but pull the trigger if $114.75-$115 clears.
The Facebook April 113 calls (FB160415C00113000) traded over 1,300 contracts March 24. The options tested a low of $2 on the stock’s test to $111.68, which is where I would start looking to buy them. These options expire in less than three weeks, but the math looks good for a possible double from current levels.
If Facebook shares can clear $117-$118 and set a fresh 52-week peak by April 15, technically, the aforementioned call options would be worth $4-$5 for a potential double.
The options will also expire before the company reports earnings the week of April 25. This takes the headline risk away from this trade, but I wouldn’t be too worried about Facebook’s numbers.
Facebook has smashed Wall Street’s expectations over the past four quarters by $0.11, $0.05, $0.03 and $0.02, respectively. Current-quarter estimates have Facebook earning $0.62 a share on revenue of $5.25 billion.
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If shares of FB clear $115, the April 113 calls will probably be above $3. If shares show strength on Monday, they are a buy up to $3 with an exit target of $4-$5.
I also like the Facebook April 115 calls (FB160415C00115000), which are slightly out of the money, on continued strength. A speculative buy and Limit Order up to $2 could be used on these options if shares clear $113.50-$114 this week. A close below $110 for FB stock would be a bearish development and a good place to set a stop loss on both aforementioned call options.
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