Trade Facebook Inc (FB) Stock for 900% Profits

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FB stock - Trade Facebook Inc (FB) Stock for 900% Profits

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Some investors have unfriended Facebook Inc (NASDAQ:FB) since its first-quarter earnings report, but the trend is starting to look more friendly toward the bulls. Traders willing to forgo a bit of instant gratification could be rewarded with a big pot of gold, though. I have a smarter, safer way to participate in a rebound in FB stock that can also deliver big profits.

How to trade Facebook, Inc. (FB) for big profits
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Let’s take a look.

Earlier this month, Facebook stock received the “sell the news” treatment from investors after it reported Q1 results. The good news? FB easily topped sales and profit forecasts. Even better, Facebook’s monthly average users (MAUs) grew by a stronger-than-expected 4.3%, and should reach a staggering 2 billion users by Q2.

And what about the competition?

While the days of easy mobile growth may be over, Facebook’s WhatsApp product launched only a couple months back has already surpassed Snap Inc.’s (NYSE:SNAP) popular Snapchat app with 175 million daily users.

Facebook isn’t stopping there, either. The social media platform continues to dominate with apps such as Facebook Lite aimed at developing countries, as well as Instagram. New features such as Messenger Day and Facebook Stories are showing early strength, too, and Facebook is on track to continue distancing itself from the competition.

Thus, the post-earnings reaction in FB stock has been curious at best. But that price action has made the stock look more likable for new positions.

FB Stock Chart

FB stock chart
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Source: Charts by TradingView

However, everything isn’t perfectly positive.

Heading into the early May earnings report, Facebook shares were pressing against a longstanding channel line that had done a fair job of alerting traders to counter-trend pullbacks and corrections.

Personally, I was wary of the price action in FB stock and expected lower prices to prevail in the short-term. In fact, I wrote as much back on April 26, along with a creative way to buy shares $138 at no cost if they pulled back as anticipated.

Technically, I was wrong. Facebook proceeded to rally through the channel line over the next few sessions in front of the earnings report.

The earnings beat itself, as mentioned above, resulted in a “sell the news” reaction. But now, the stock has consolidated over the past couple weeks and established a 6% correction. The current pullback pattern could be the pause that refreshes.

The price contraction looks more compelling with last week’s test and bullish reversal of the 50-day simple moving average. But considering that stochastics look less than friendly with an overbought crossover signaling, I would prefer to approach FB stock with a limited-risk spread rather than buying shares outright.

Here’s how.

How to Trade FB Stock

Last time, the proffered modified long put butterfly spread ended up as a wash as Facebook remained above $138 through expiration of the shorter-term options position.

Right now, given Facebook’s solid earnings report and decent correction pattern, I’d like to suggest a bullish modified fence. We’ll package a bull put spread and long bull call vertical. This strategy allows the investor to potentially buy Facebook on additional price weakness with limited risk. At the same time, the position can also participate and profit in a rally in FB stock.

Reviewing Facebook’s options, I suggest selling the weekly 23 June $144/$143 put spread and simultaneously buying the 23 June $152.50/$155 call vertical for a combined debit of 25 cents is interesting.

What’s this packaged combination do?

On the downside, risk is limited to $1.25 below $143 in FB stock. The flip side is that the bull put spread allows flexibility to buy pullbacks with completely risk control.

Between the $144 put strike and $152.50 call strike, at expiration, both spreads are worthless and the trader would be out the 25-cent debit. However, as this combination is long deltas during the life of the position, if FB stock starts to rally, paper profits could potentially build inside this range.

Lastly, and most lucratively, if Facebook does find a bit, this position holds the $152.50/$155 bull call spread for a below-market price of 25 cents. If investors take FB to fresh highs by expiration, above $155, you can pocket $2.25 in profits.

That’s 900% for a move of less than 5%.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/trade-facebook-inc-fb-stock-for-900-profits/.

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