Name That Trade(s) $FB: Directional Pokes

by CC January 28, 2015 2:07 pm • Commentary

Earlier, Dan previewed the FB earnings event and looked at some hypothetical overlays for existing longs. You can read that here.

As we said earlier, the options market is implying a one day move of a little less than 7%. With the stock at 77, the Jan30th weekly expiration 77 straddle is offered at $5.40, if you bought that you would need a move above 82.40 or below 71.60 to make money, or about 7%.

We’re not involved in FB going into the event but we wanted to look a some directional trades that would express a view one way or the other depending upon your directional inclination:


Hypothetical Trade – FB (77.40) Buy the March 80/90/100 call fly for 1.90

– Buy 1 March 80 call for 2.90

– Sell 2 March 90 calls at .55 (1.10 total)

– Buy 1 March 100 call for .10

Breakevens on March expiration: Lose up to 1.90 below 81.90 with total loss below 80. Gains of up to 8.10 between 81.90 and 98.10 with max gain at 90.

Rationale – This could also be used as a pretty good stock alternative as well. The reward profile up to reasonable levels in the stock at $90 is similar to long stock but its risk profile is much more favorable if the stock goes down as the most one can lose is 1.90.



Hypothetical Trade – FB (77.40) Buy the Feb 75/67.50 put spread for 1.75

– Buy 1 Feb 75 put for 2.30

– Sell 1 Feb 67.5 puts at .55

Breakevens on Feb expiration – Lose up to 1.75 above 73.25 with total loss above 75. Gains of up to 5.75 between 73.25 and 67.50 with max gain at or below 67.50.

Rationale – This risks about 2% of the stock but with a decent reward on a pullback below the recent range.