[Options] Booking a FaceRipper in Meta
We see a beauty gap in January coming out of earnings, and a healthy retracement/consolidation that appears to be holding. Our bet is that these levels will continue to hold and $META will go on to target recent highs near $200 per share.
And if these levels don't hold, we'll likely know soon and we'll exit quickly.
To express this bet, we're going to use a tight stop and get short puts to pay for the trade.
Here's the Play:
I like entering a $META May Bullish Risk Reversal at the 165/195 strikes. This means I'll be short the May 165 puts and long an equal amount of May 195 calls. At the time of this writing, I can put the trade on for a small net credit of approximately 60 cents. I'm less concerned about the amount of the credit, but I do want it to be a credit -- whatever it is.
Once the trade is on, I'll be looking for any opportunity to sell half of my calls at a value that would pay for covering ALL of my short puts. So, for example, if the calls trade up in value to $15.00 per contract and the puts are trading for less than $7.50, then I'll sell one call to pay for the closing of two puts.
Any leftover credit from that action adds to the credit I receive today when I put the trade on, and I'm left with half of my long calls with ZERO risk in the trade. In fact, it's a guaranteed winner at that point because the worst that can happen is the calls expire worthless, yet I get to keep all the credits I've received. That's a good position to be in.
In the meantime, we'll be leaning heavily against $META's intraday low last week. If we see any $META closing price below $167 per share, that's our signal that we're wrong and we'll want out, closing the trade near the opening of trading on the next day.
If you have any questions on this trade, please send them here.
ASO subscribers who missed last week’s live video Jam Session where we reviewed activity in our options portfolio from the past week can catch it here.
P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk-Free! Or give us a call to learn more: 323-421-7991.