The power of tech stocks knows no bounds. Just look at that Nasdaq Composite flying into the wild blue yonder with nary a care. At this stage, I’m running out of fingers and toes to count the number of consecutive up days. And what have we here?
Facebook Inc (NASDAQ:FB) is getting in on the action with an eye-popping breakout. While chasing the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) at such lofty heights is ill-advised, Facebook stock is just now breaking from a two-week base making it an altogether more attractive way to acquire bullish exposure to the tech space.
On Wednesday, Facebook stock finished just shy of 2% on heavy volume. The climb has carried the Street’s favorite social media stock to new all-time highs above $136. Of course, with the bulk of its tech brethren banging out new all-time highs day-after-day, Facebook’s record highs aren’t exactly unique.
But they could be deserved of a trade.
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Really, there’s nothing not to like about Facebook stock on the price front. Its trend is positively beaming. All major moving averages are pointing higher.
And short of the high volume down day striking on Feb. 2 following earnings, we’ve seen zero distribution days this year. To say the bulls have fully in control of FB is like saying the Nasdaq is a touch overbought: a big-time understatement.
Facebook Options Await
Though the din of the earnings crowd is fading fast, implied volatility for Facebook options remains somewhat elevated. The IV rank currently sits at 31%. Instead of going for the jugular with a straight call purchase, let’s build a call spread to cut the cost and mitigate some of the volatility exposure.
If you think the stock continues its climb over the coming months, then buy the April $135/$140 bull call spread for $2.35. The risk is limited to the initial cost and will be forfeited if Facebook stock sits below $135 at expiration. The reward is limited to the distance between strikes minus the initial cost, or $2.65. You will capture the max reward if Facebook stock can rise above $140 by expiration.
At the time of this writing, Tyler Craig held no positions on any of the aforementioned securities.
