How to Profit From Nothing in a Range-Bound Facebook Stock

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FB stock - How to Profit From Nothing in a Range-Bound Facebook Stock

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After racing past the $200 threshold a few weeks ago, shares of Facebook (NASDAQ:FB) have fallen back again below that major price point. Some of that pullback was undoubtedly warranted as FB stock, and internet stocks generally, had gotten ahead of themselves on both a fundamental and technical basis.

Now that Facebook has given up some of those gains, a period of consolidation is likely. I expect FB stock to remain range-bound over the coming few weeks, especially with earnings looming.

There is major support in FB stock at the $189 area. The 50-day moving average at  $186.55 should provide additional downside support as well. Volume weighted MACD is poised to generate a fresh buy signal on any further strength. So from a technical perspective, Facebook is looking decidedly more attractive at current levels.


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In my previous post on FB stock from June 21, I recommended taking a short position in Facebook stock above $200. That viewpoint proved to be prescient, as FB stock dropped back to the $195 level.

Now that shares have found their footing again at lower levels, my outlook has changed — because price does matter. While not looking for a breakout to new highs any time soon, I also feel any downside move will muted as well.

Implied volatility has softened somewhat, but still remains near the highest levels since the last earnings report in late April. This favors option-selling strategies when constructing trades. So to position to be a buyer of FB stock at lower levels, a bull put spread makes probabilistic sense. One big advantage of option strategies versus stock is the ability to profit in a sideways market that is expected in Facebook.

Earnings are due July 25, so using traditional monthly options that expire July 20 will avoid any jump risk. The impending earnings report should also serve to dampen volatility in front of the release.

FB Stock Trade Idea

Buy FB July $185 puts and sell FB July $187.50 puts for a 30-cent net credit or better.

Maximum gain on the trade is $30 per spread with maximum risk of $220 per spread. Return on risk is 13.63%. The short $187.50 strike is well below the $189 support level and provides a 5% downside cushion to the $197.36 Monday closing price of FB stock.

Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.


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Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


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