Facebook went from market darling to market dog in 0-60, but Andrew Giovinazzi of OptionPit.com expects that to change soon and offers an options trade based on a turnaround.
Trading this market successfully has been about avoiding being too bearish. For the most part I have succeeded in that, but as far as trades go we are getting thin with the volatility products. All of the indexes are up 1% at least, which is keeping with the theme over this last year that the majority of melting has been on the upside.
With 1% moves, the VIX will not go through 12. Volatility cuts both directions and with the lack of suitable global assets, all of the sudden the USA is winning the contest for cash. Explain the rallies in INTC and MSFT. What is different than last week? BOJ easing is what is different and the 3-4% yields on those names look enticing. The QQQ is close to recent highs in September with 0 help from AAPL. Smart phones and tablets are taking over but the desktop is rallying. My trade is a tweener for a name that works on all the platforms.
A stock that has not participated much in this rally is Facebook (FB). This was one of my better trades last year from the long premium side, and I have avoided it after I had a long premium implosion mid-winter. But with the liquidity starting to wash around in the market, I can easily change my perspective. No, it is not 1999, but 1% up days on no news is a liquidity driven market. There are buyers and they want to own stocks.
LivevolX® www.livevol.com
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From Livevol, I have the Jun sigma in FB around 35.96. That is not the low but from the vol chart above (see yellow line), 36% vol is not a bad place to start. What I want is a trade that will play into the FB push into mobile and this cycle in earnings should start to see that. One thing to note is that the 30-day HV is at the bottom of the range for FB, and I don’t think with dollars flowing into the market, that this is sustainable.
The Trade
The 1 x 2 calls spreads in the Jun like the 27/29 looks like a low-risk way to play the FB move if the money sloshing around in the markets finally finds the stock. The idea is to buy for a small debit, and as I look they are pricing around a .25. If you want a credit, drop the short strike to the 26 line. Small downside and with immediate exposure to upside and this one I want to hold through mid-May.
By Andrew Giovinazzi, Chief Options Strategist, OptionPit.com
