Ride the Santa Claus Rally in Facebook Stock (FB)

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Wall Street is not a happy place right now, with uncertainty swirling ahead of the Fed’s decision on interest rates and plunging crude oil prices. That said, there are still investment opportunities to be hand, especially for options traders.

One such opportunity lies with short-term options trades on online social media giant Facebook Inc. (FB).

Yes, Facebook stock has ground its way grudgingly lower since peaking just north of $110 in early November. Compared to the rest of the market, however, Facebook stock price action has held up remarkably well.

Shares are currently perched on support at their 50-day moving average — a trendline that provided a key backstop to Friday’s broad-market selloff. Additionally, FB also has support at $100; Facebook stock has not closed a session below that level since Oct. 22.

Support for FB stock is also evident among the brokerage community. Currently, Thomson/First Call reports that only four of the 51 analysts following Facebook stock rate the shares a “hold” or worse. The 12-month price target of $125 also represents a healthy 21% premium to Facebook stock’s current perch just shy of $103.

12-14-2015 FB
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Options traders are also firmly behind FB shares, especially from a short-term perspective. In fact, the December put/call open interest ratio for FB comes in at 0.63, with calls nearly doubling puts among options set to expire before the end of this month.

The December $105 strike has garnered especially heavy attention, with 61,379 calls and 44,822 puts currently in residence.

Overall, December implieds are pricing in a potential move of about 4% heading into the new year. This places the upper bound at $107.24, while the lower bound lies at $98.76. Keep in mind that Fed interest rate action and broad market turmoil (i.e. oil prices) can have a major effect on FB’s gyrations, meaning that implieds could be underselling the potential for volatility over the next few weeks.

2 Trades for Facebook Stock

Put Sell: Caution is key at the moment for options traders. While FB has some upside potential, broad-market headwinds could well scuttle any short-term rally. As such, the best approach for FB options traders right now may be earning some income by selling deep out-of-the-money puts. Given multiple technical support levels and plenty of backing within the brokerage community, traders considering a put sell on DB might want to look at the December $95 put.

At last check, the December $95 put was bid at 39 cents, or $39 per pair of contracts. As long as FB stock trades above $95 through expiration this Friday, traders pursuing this strategy will keep the $39 premium. However, if FB trades below $95 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $95 per share.

Call Spread: For those willing to take a risk on a potential rally (don’t count Santa out just yet), a weekly December 24 series $103/$105 bull call spread has potential. At last check, this spread was offered at 83 cents, or $83 per pair of contracts. Breakeven lies at $102.83, while a maximum profit of $1.17, or $117 per pair of contracts, is possible if FB stock closes at or above $105 when weekly December 24 series options expire at the end of next week.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/facebook-stock-santa-rally/.

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