Trade Ideas September 28, 2020

FacePalm (FB)

by Dan

Earlier today Guy Adami and I discussed the technical set-up in mega-cap tech, you know F’MAGA (FB, MSFT, AAPL, GOOGL, AMZN), watch below:

The take-away was quite simple, all but AAPL had broken their uptrends from the March lows this month, after having what looked and felt like a blow-off top in August.

It is worth noting though that FB today sorely lags the Nasdaq 100, up only 60 bps vs the index and many of its peers up 1.6%. Two weeks ago the stock broke down below that well-defined uptrend, last week caught a little support at its 100-day moving average near $246, with support below that near $235, the pre-earnings gap level:

So resistance is up about $13 and support is down about $12.

The next identifiable catalyst for the stock will be their Q3 earnings which should fall on one of the last few days of October.

Looking out to Oct 30th weekly expiration with the stock just below $257 the 257.50 Straddle (the call premium + the put premium) is offered at about $27.50, or about 10% of the stock price. If you were inclined to play for a big move over that time period, but were not sure about direction, buying that straddle would be one way to do it. But you would need a rally above $285, or a decline below $230 to make money.  For most of us who are not inclined to delta hedge a position like this, meaning buying stock has it does down and shows a profit, or selling stock as it goes higher, this is a hard way to trade options, just betting on movement of the underlying by buying options deemed to be too cheap relative to expectations for movement.

I’d rather wait to see if it gets back to resistance and then fails and press the short lower than try to take a crack at it here, in no man’s land. For those who like to trade weeklies, with the stock at $256.75, the Oct 2nd weekly 255 puts are offered at $3.50, offering break-even at $251.50, down 2% which does not seem to be aggressive. BUT get the direction wrong and this trade will be worthless quickly.

I am keeping an eye on this one… any hiccups into the elections and investors will shoot first and ask questions later.

 

For those who think that Facebook is one of the single largest destabilizing force of our nation’s democracy, or for those who have not given it much thought, this is a great read from Casey Newton, formerly of The Verge:

 

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