Facebook Inc (NASDAQ:FB) stock set a new all-time high but just didn’t have enough steam to maintain it, having pulled back by a few dollars to remain range-bound around $125 per share. But after such a tremendous tear, will Facebook stock rally even more? It might after the profit-takers are finished and the headwinds are past, believes one options expert.
Selling Facebook (FB) stock on the news
InvestorPlace contributor Joseph Hargett reports that Facebook Inc (NASDAQ:FB) stock has settled into a basing period after it soared following the earnings beat. Investors who sold on the earnings news dragged the shares down a few dollars to the $125 range, and he sees consolidation going on. He notes that the stock hasn’t closed a trading session below its 10-day moving average since July 5 and believes that the average is setting a possible springboard for another move higher.
He adds that calls on Facebook Inc (NASDAQ:FB) stock are gaining in popularity with open interest for the August/ September put/ call sitting at 0.65. He notes that among the options that are set to expire over the next couple of months, calls are close to doubling puts.
He adds that implieds are a little high as September options are pricing in a 4.5% move despite the lack of major events being scheduled before next month’s expiration. He said this means the high end of the expected range sits at $130.70, and the low end of the range is around $119.30, although he added that the low end is probably nearer $120 because of the technical support that exists around there.
Call spreads or put sells for Facebook (FB) stock
Hargett suggests that options trades who agree with him that Facebook Inc (NASDAQ:FB) stock will move higher might think about picking up the bullish September $125/ $130 call spread. It was priced at $1.80 or $180 for a contract pair. Based on the expected trading range he gave above, this option looks attractive because traders break even on it at $126.80. The highest possible profit is $3.20 or $320 per contract pair. He notes that it’s possible to hit this highest profit level if Facebook stock closes at $130 or higher when the month’s options contracts expire.
Those who expect Facebook Inc (NASDAQ:FB) stock to remain range-bound for a while could consider a put sell options contract instead, he adds. The August 19 $120 put was priced at 19 cents or $19 per contract set. This options contract will be profitable if Facebook stock stays higher than $120 through the expiration date, which is a little over a week. If the shares dip below that level before the contract expires, options traders who choose this trade may find themselves with 100 shares for every contract that was sold for $120 per share.
Shares of Facebook Inc (NASDAQ:FB) stock edged upward by as much as 0.16% to $125.08 during regular trading hours on Thursday.