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How Facebook Inc (FB) Stock Can Double Your Money

FB stock is going to pull back; here's how to take advantage


It’s official. The Nasdaq-100 has entered a post-gravity world. Down days are becoming rarer than unicorns, and investor appetite for technology stocks is seemingly insatiable. Facebook Inc (NASDAQ:FB) is among the stocks leading the charge, and that’s nice if you’ve been long. But traders looking for opportunity in FB stock at this point should be looking lower.

How Facebook Inc (FB) Stock Can Double Your Money
Source: Shutterstock

The Powershares QQQ Trust (NASDAQ:QQQ) is up a mouthwatering 18% year-to-date, led by tech titans such as Facebook, Apple Inc. (NASDAQ:AAPL) and, Inc. (NASDAQ:AMZN).

But while most of big tech is skirting the stratosphere, FB stock has cobbled together a nice little pullback for would-be buyers.

Let’s investigate what looks to be a low-risk opportunity.

Since notching another in a long line of all-time highs earlier this month, Facebook stock has quietly receded 2.5% to its current perch. While a deeper retracement would have been ideal, the bullish undertones in tech-land have prevented any substantial pullbacks from materializing.

Sadly for dip buyers, this is about as good as it gets these days.

FB stock chart Click to Enlarge
Source: OptionsAnalytix

Of course, the shallowness of the retreat does speak to the extreme bullish sentiment surrounding FB and friends. So in that sense, small pullbacks like this one should be cheered by those rooting for higher prices in the weeks to come.

The past few days of mild profit-taking have ushered Facebook shares to their rising 20-day moving average. This oft-watched smoothing mechanism has been as good a spot as any for support to form.

Watch for Facebook to pop above $151 or so to confirm its next up-leg has begun.

How to Make Bank on FB Stock

Bull call spreads offer a low-cost, yet highly leveraged, route for betting on a continuation of Facebook’s uptrend. Buy the Jul $150/$155 bull call spread for $2.15. The position consists of buying to open the Jul $150 call while selling to open the Jul $155 call.

You will incur the max loss of $2.15 if FB stock sits below $150 at expiration. The max gain is limited to the spread width minus the initial cost, or $2.85, and will be captured if the stock can rise above $155 by expiration.

By risking $215 to obtain $285, this option spread offers an attractive 133% return — or more than double your money.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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