Options Play To Ride Facebook To New Highs

Since its May 2012 initial public offering, Facebook's shares have more than doubled from $38 to price above $76 on September 22, 2014.

The long trend higher in n Facebook continues to offer decent entry points. It pulled back to $74.58 last Monday and has rebounded more than 3.5% over the past six days. With the recent move, $76 is a new level of support. This stock has proven that it can move and the bullish trend is still intact.. Now after a slight retracement and pop again, I'm seeing an opportunity to get in for a bigger anticipated move if the stock is able to clear old highs above $78.

Buying a call that is deep in the money (more than one strike away from the current stock price) provides the benefits of the option moving at nearly the same rate as the stock. I'm willing to speculate and buy the Facebook call options with a strike price of $74 that expire next month on October 17, 2014.

The $74 strike provides enough opportunity for the stock to move to new highs before the third Friday in October when it expires. The current ask price for this call is $5.10 per option, and 1 contract is equal to 100 shares of FB. If Facebook closes below $74 at expiration, the calls expire worthless and you lose your entire premium, and the stock needs to be at $79.10 for this trade to break even.

 Share This
Return to Blog