Facebook Inc (NASDAQ:FB) is among a very select group of stocks showing some spine against the broader markets right now.
The recent bout of selling in U.S. markets has left more than a few wrecked charts in its wake. Some stocks, however, have weathered the storm with style and remain firmly in an uptrend making the recent pullback a buying opportunity.
Facebook stock is in that number. The tale of FB’s tape in 2015 has been one of strength and opportunity. And, if recent patterns are any indication, I suspect the popular social media stock has more upside in the offing.
Here are the top 2 reasons why you should be looking to buy this dip in FB stock.
- Old resistance becomes new support: Before its recent breakout, the $81 zone in Facebook’s stock chart acted as major resistance, halting numerous advances dead in their tracks. With last month’s stellar breakout, FB stock now finds itself above this pivotal zone. Technical analysis 101 states old resistance often becomes new support. Well, with the latest round of profit taking, Facebook shares have retraced back to the $81 zone. This is the area where buyers should step up and kick off Facebook’s next advance.
- FB volume patterns: The volume patterns for the past two months in FB have been quite bullish. On average, the volume during up days has been well above that of down days. During the March breakout, Facebook’s volume surged notably. In contrast, the volume amid the recent pullback has been quite tame, signaling an absence of any major selling.
Use FB Bull Put Spreads to Profit
To capitalize on the coming rebound and score a high probability of profit, sell May bull put spreads.
Sell the May $75/$70 put spread for 77 cents credit. The strategy is effectively a bet that Facebook stock will remain above $75 by expiration. If it does, you’ll pocket the initial 77-cent credit — the max reward.
The max risk is limited to the distance between strikes minus the net credit, or $4.23, and will be lost if FB falls below $70.
Keep in mind that FB does report earnings on April 22, so there is risk of an earnings gap should you hold into the announcement.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.