The power of tech stocks knows no bounds. Just look at that Nasdaq Composite flying into the wild blue yonder with nary a care. At this stage, I’m running out of fingers and toes to count the number of consecutive up days. And what have we here?
Facebook Inc (NASDAQ:FB) is getting in on the action with an eye-popping breakout. While chasing the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) at such lofty heights is ill-advised, Facebook stock is just now breaking from a two-week base making it an altogether more attractive way to acquire bullish exposure to the tech space.
On Wednesday, Facebook stock finished just shy of 2% on heavy volume. The climb has carried the Street’s favorite social media stock to new all-time highs above $136. Of course, with the bulk of its tech brethren banging out new all-time highs day-after-day, Facebook’s record highs aren’t exactly unique.
But they could be deserved of a trade.
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And short of the high volume down day striking on Feb. 2 following earnings, we’ve seen zero distribution days this year. To say the bulls have fully in control of FB is like saying the Nasdaq is a touch overbought: a big-time understatement.
Facebook Options Await
Though the din of the earnings crowd is fading fast, implied volatility for Facebook options remains somewhat elevated. The IV rank currently sits at 31%. Instead of going for the jugular with a straight call purchase, let’s build a call spread to cut the cost and mitigate some of the volatility exposure.
If you think the stock continues its climb over the coming months, then buy the April $135/$140 bull call spread for $2.35. The risk is limited to the initial cost and will be forfeited if Facebook stock sits below $135 at expiration. The reward is limited to the distance between strikes minus the initial cost, or $2.65. You will capture the max reward if Facebook stock can rise above $140 by expiration.
At the time of this writing, Tyler Craig held no positions on any of the aforementioned securities.
