FB Stock Pop Looks Enticing, But This Should Give You Pause

Shares of Facebook Inc (NASDAQ:FB) jumped 1% this morning, showing strength amid a rather lackluster day on Wall Street. With stocks mixed ahead of this afternoon’s highly anticipated Federal Reserve announcement, the pop in FB stock was easy to spot as a potential haven for hot money.

Before following the herd into FB stock, however, be aware of it faces a brick wall of resistance, heretofore impenetrable.

More on that in a moment.

But first, it’s worth noting the Facebook stock rally was accompanied by a long awaited breakout in the social media-based Global X Funds (NASDAQ:SOCL). I first mentioned the potential for a big move in the SOCL ETF last month. It certainly took its time, but the bullish action in the fund was pretty convincing this week.

Source: Stockcharts.com

Further strength in SOCL should aid Facebook’s coming breakout attempt.

As the chart below shows, FB has been locked in its range-bound prison between $81.50 and $72.50 for eight months. And it’s not like the stock pays a dividend, so don’t think investors have been getting paid to wait.

Any and all previous bids at breaching overhead resistance have flopped, so bulls have their work cut out for them if the current attempt is going to succeed.

FB stock
Source: Stockcharts.com

Would-be FB stock buyers seeking more confirmation that today’s rally will continue should wait until we break above the $81.50 zone before piling in.

Should the FB Breakout Come, Play It With Options

Traders looking for a cheaper alternative to buying Facebook shares could consider buying call options on the breakout. With implied volatility at the lower end of its one-year range options premiums are definitely on the cheap side these days.

Buy the Jun $77.50 calls. The current price is $6, but if you wait for a breakout (which I suggest) the price should be a bit higher.

The risk is limited to the initial debit paid, while the reward is unlimited.

Should FB finally break free of its range and embark on a new uptrend, you’ll be well-positioned to profit with these call options.

As of this writing, Tyler Craig held no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/fb-stock-pop-looks-enticing-give-pause/.

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