Here’s Why You Should Like Momo Stock Today!

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MOMO stock - Here’s Why You Should Like Momo Stock Today!

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If you’ve been interested in buying Momo (NASDAQ:MOMO) and consider yourself an investment opportunist, there’s good reason to “like” shares today. But hedging position risk using a bullish modified fence strategy in lieu of purchasing a volatile MOMO stock is still well-priced for both value and safety. Let me explain.

MOMO stock was down about 8% Tuesday. The driver behind the pressure in shares was word from Reuters Facebook (NASDAQ:FB) has quietly set up a Chinese subsidiary. The move could theoretically cut in on Momo’s social media customer base. But it’s going to be a challenge to say the least.

Bottom line, investors will have to wait and see what becomes of Facebook’s effort. At the end of the day China is a country known for “liking” its share of restrictions on foreigners, including the company’s own flagship social media platform in China. But in the here and now, the Momo price chart is once again offering growth at value levels and an opportunity for MOMO stock bulls to get long today.

MOMO Stock Daily Price Chart

Source: Charts by TradingView

Following a rally to fresh all-time highs out of a large corrective cup-shaped base, MOMO stock has pulled back into a band of price support within its uptrend. Shares are currently testing a bullish earnings gap, 38% retracement level and uptrend line dating back to February. That’s nice, but make no mistake about it, Momo is volatile.

The provided daily chart also shows technical zone support could be as far down as $38.50. That’s where a challenge of the 50% level and a full-fledged gap fill come into play. As well, MOMO stock would still be maintaining another type of uptrend used by technicians based on the late April low in shares. As such, bullish investors might consider using the options market in Momo to their advantage and design a stronger risk-adjusted position.

MOMO Stock Modified Fence

Similar to my coverage of MOMO in late May, I favor approaching the stock with a modified fence strategy. The spread combination purchases a call vertical and sells a put vertical in the same contract month to finance all or part of the cost of the entire position.

Reviewing MOMO’s options and shares at $42.30, one favored spread of this type is buying the Aug 31 $45/$50 call spread and selling the Aug 31 $42.50/$40 put spread for a small debit of 25 cents.

This modified fence allows for a decent amount of time for Momo to digest Tuesday’s move and has a built-in earnings catalyst in the second half of August. The profit center for this strategy is if MOMO’s bull call spread can go in-the-money by expiration. If conditions begin to reaffirm the uptrend in shares, a move above $50 could turn 25 cents into a profit of $4.75 in a hurry.

And what if Mr. Market has other plans for MOMO stock?

Since there are no guarantees on the price chart, it’s nice to know with certainty $2.75 or exposure of no more than 6.5% of this sometimes volatile stock is ironclad. Furthermore, since risk is limited to the sold put spread, the modified fence can work well for investors’ looking to accumulate MOMO stock on any continued price weakness.

Investment accounts under Christopher Tyler’s management currently own positions in MOMO stock and its derivatives. 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.


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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/2018/07/heres-why-you-should-like-momo-stock-today/.

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