Facebook Inc (FB) stockholders were thrilled on April 28 when FB stock surged more than 7% following a better-than-expected quarterly earnings report. Unfortunately, FB has done little since then, locked in a battle with technical resistance at $120.
Click to Enlarge But the barrier is weakening, and FB could be poised for a breakout within the next month, providing an opportunity for options traders. Facebook stock logged several breaches of $120 in early May, and though the stock is pulling back to support in the $117 region this week, the opportunity is there.
In fact, the recent pullback allows FB to burn off some overbought steam and head into the next two weeks with fresh legs as support rises into the area in the form of FB stock’s 50-day moving average.
Checking in with FB stock’s sentiment backdrop first, we find a wealth of bullish sentiment. Specifically, Thomson/First Call reports that 47 analysts have doled out buy ratings on FB, compared to just three holds and one sell rating. Additionally, the 12-month price target currently rests at $142.87, a modest premium of about 21% to FB stock’s current perch.
Options traders are also firmly bullish on FB stock. At last check, the June/July put/call open interest ratio arrived at 0.67, with calls easily outstripping puts among short-term options. What’s more, premiums are currently at near-term lows for FB stock options, as June implieds are pricing in a potential move of only about 2.4%. This places the upper bound at about $120.80, while the lower bound lies near $115.20.
2 Trades for FB Stock
Call Spread: Implieds are clearly pricing in heavy technical resistance at $120, but a breakout above this region could create a bigger-than-expected move from FB stock in the coming weeks. The best way to take advantage of such a move would be to consider a bull call spread … for instance, a July $120/$125 bull call spread.
At last check, the July $120/$125 spread was offered at $1.53, or $153 per pair of contracts. Breakeven lies at $121.53, while a maximum profit of $3.47, or $347 per pair of contracts, is possible if FB stock closes at or above $125 when March options expire in two weeks.
Put Sell: For those traders concerned about broad-market headwinds, an FB put sell may be just what you are looking for. At last check, the June 17 series $114 put was bid at 18 cents, or $18 per pair of contracts.
As long as Facebook stock trades above $114 through expiration next Friday, traders pursuing this strategy will keep the $24 premium. However, if FB trades below $114 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $114 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
