Subject: Facebook (FB) Wins in Court and on the Charts

Dear Friend,

Today we bring you a brand new Trade of the Week! Each week we share a new trade idea directly from our trading team.

Terry

July 5, 2021

Week 654

Facebook (FB) Wins in Court and on the Charts

PLUG is a hydrogen fuel cell provider based outside of Albany, NY. The company reported earnings on Tuesday (June 22) after a delay due to some accounting issues. While earnings missed the mark, PLUG’s strong current and projected revenue growth is considered more indicative of the company’s potential. The company also has a strong cash position on its balance sheet. Wall Street generally approved of the numbers, as several analysts raised their price targets.

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In the meantime, the stock keeps on chugging. In fact, FB’s market cap crossed the $1 trillion mark this week. If the market is a forward-looking mechanism, then it doesn’t appear too worried that regulators will ultimately prevail. Looking at the options market, out-of-the-money calls are priced higher than the corresponding puts in the 21 Jan 22 series, suggesting that the market sees more upside. The 20-day moving average, which is at 340, has guided the current rally since March. The stock is currently 4% above this trendline, so we’ll use this as the basis for our put credit spread.

If you agree that FB will stay above its 20-day moving average, consider the following trade that relies on the stock remaining above 340 through expiration in seven weeks. Note that FB reports earnings on July 28.

Buy to Open FB 20Aug 335 put (FB210820P335)
Sell to Open FB 20Aug 340 put (FB210820P340) for a credit of $1.50 (selling a vertical)

This credit is $0.07 less than the mid-point of the option spread when FB was trading just below $355. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread. Each spread would then yield $148.70. This trade reduces your buying power by $500 and makes your net investment $351.3 ($500 – $148.70). If FB closes above $340 on August 20, both options will expire worthless and your return on the spread would be 42% ($138.70 / $261.30).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

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Subject: Facebook (FB) Wins in Court and on the Charts

Facebook (FB) Wins in Court and on the Charts