It hasn’t been entirely a situation of June gloom in kicking off one of the broader market’s more notoriously weak calendar months. But two trading days in and given the rather flat and continued range-bound conditions, you may like a well-placed weeklys July bull spread in Facebook (FB) stock to help ease the burn on the portfolio.
Like Facebook Stock
There’s a lot to like about Facebook stock right now on a technical basis. As the provided daily chart illustrates, there’s an uptrend in place for the last several months. Further, the most recent lower high held FB stock’s 200-day simple moving average.
Also, currently and after a period of tight, flag-like consolidation — Facebook stock looks poised to break out. In fact, FB nearly did just that on Tuesday before retreating into the close. Were a thrust to occur similar to one in May and off its long-term moving average support line, the Facebook stock price would quickly be testing its all-time-highs near $86.
In opposition, bears “like” Facebook stock too. There is 50-day simple moving average resistance that appeared to stymie bulls trying to like FB shares Tuesday. As well, there are a couple resistance lines to clear, at least on my chart.
And finally, other than the fact it’s June and a month that historically yields a more aggravating than gloomy -0.05% our technical view is there’s still more to like about Facebook stock than not.
Facebook July Bull Call Spread
There’s actually a good deal more to like in Facebook stock if one looks beyond FB shares and instead gives a bull call spread straddling the share price consideration. Facebook stock volatility and option or implied volatility are actually cheap and worthy of buying an outright long call at what we’d call likable prices.
However, given June’s historic ennui in the market and one of the more memorable technical consolidations still impeding investors’ bullish resolve, a vertical is well-liked by this trader and option strategist.
At the end of the day, a FB vertical spread can take the burn out of being too exposed directionally and requiring too much of Facebook stock, even when premiums are overall affordable. With that said and after checking the board for ideas, I like the weekly Jul 2 $79/$82 bull call spread, trading for a debit of $1.55.
With shares of FB stock closing at $80.44 Tuesday, this particular bull call spread is positioned so that it breaks even without necessitating the Facebook stock price to move higher; well, other than a random 11 cents at expiration. As this Weeklys vertical is 3 points wide, the profit potential is $1.45 and essentially equal to the maximum risk and debit paid of $1.55.
And that return of 94% requires just less than 2% out of Facebook stock.
And in the event, Facebook stock can’t produce profits and instead finds investors liking lower prices in FB shares? Well, this vertical also starts with a fairly soft directional delta of 26, which helps in managing risk when looking to reduce the spread’s maximum loss.
One idea this strategist likes is if Facebook stock were to establish a new relative low closing price of $70.44 and take out the 200-day simple moving average, the position would be closed out. Currently, that type money management would contain the loss to about 65 or 75 cents and less than half the initial debit.
Now what’s not to like about that?
As of this writing, investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon his 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
