Want To Own Facebook Lower – Check Inside: Aftermath
Dragonfly Capital | Jul 29, 2012 02:51AM ET
Saturday morning, I was asked how this went and how a holder would deal with this position now. This is really two questions. In the follow up below I provide the two answers that were just too complex for the comments field, along with the original piece as an introduction:
How would you like a chance to own Facebook 12% lower and still win if it rises on the earnings report? It is possible. The options market is pricing in a $3.50 cent move in the stock. You can take advantage of this by trading a Call Spread Risk Reversal. By selling the August 17 Expiry 24 Put for $1 and then buying the August 3 Expiry 27/30 Call Spread for 1.20, it will cost you 20c to have potential for a $2.75 gain next week and or own the stock at 24 on a pullback. Resistance comes into play at 30 as you can see in the chart below, so it will take a lot to leap over it. Not for everyone, but those waiting for it might as well have a shot at the upside too.
Trade: Buy August 3 Weekly 27/30 Call Spread and sell August 17 Expiry 24 Put for 20 cents.
The Proper Play
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