With equities awakening from their bearish slumber, momentum stocks like Facebook Inc (FB) are returning to their bullish ways.
To be fair, FB was perhaps one of the strongest tech stocks during the market swoon, so its strength is far from surprising. Indeed, the downturn was only able to take Facebook stock below the oft-watched 50-day moving average for a few trading sessions before bulls rushed in.
With the social media kingpin now squarely above all major moving averages it’s well positioned to challenge its all-time high of $117.59 reached in the midst of the post-earnings euphoria last month.
Click to Enlarge
The clean trendline that has materialized over the past month should be of particular interest to Facebook stock fans. Buyers have congregated at this line half a dozen time to scoop up shares on each and every dip.
The bulls appetite is insatiable and its that kind of conviction that will drive FB stock back to its peak in the months ahead.
Follow Facebook Stock to New Heights
In light of the gradual trend for FB an option spread that mitigates the affects of time decay is the way to go. The bull call spread should position us nicely to double our money if Facebook stock can retest the $117 zone in the near future.
Bull call spreads provide an attractive alternative to buying call options outright. The vertical spread consists of buying to open a lower strike call while selling to open a higher strike call in the same expiration month.
The premium received from the short call partially finances the purchase of the long call. A cheaper trade translates into less risk as well as a position better poised to deliver BIG returns on a small increase in the stock’s price.
Buy the May $105/$115 call spread for $5 or better. The max loss is limited to the initial $5 debit and will be forfeited if the Facebook stock price sits below $105 at expiration. The max gain is limited to the distance between strikes minus the debit, or $5, and will be captured if FB stock can rise above $115 by expiration.
By risking $5 to make $5, the option spread offers the potential to double our money.
That’s leverage at its best, baby.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
