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Althea Spinozzi
Head of Fixed Income Strategy
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What are your options - META
Koen Hoorelbeke
Investment and Options Strategist
What are your options - META
META Platforms Inc., formerly known as Facebook, continues to make headlines. Their latest venture, Threads, is poised to compete directly with Twitter, adding another layer of intrigue to their expansive portfolio. This move has already started to influence META's stock, which has been on an upward trajectory this year. The launch of Threads seems to be fueling this momentum, but the question remains: will this trend continue, will it plateau, or have we already seen the peak?
The answer to these questions is not straightforward and largely depends on individual perspectives and market predictions. In this article, we aim to equip you with three distinct strategies tailored to different market views - bullish, neutral, and bearish. Regardless of your stance on META's future, there are ways to express a view in the options market that aligns with your outlook.
Please note that the strategies and examples provided in this article are intended for educational purposes only. They are designed to aid in the development of a thought process and should not be blindly copied or implemented. Every investor or trader must conduct their own due diligence and consider their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market involves risk, and it's crucial to make informed decisions.
Strategy: Vertical Put Spread (Bullish)
The Vertical Put Spread is a defined risk strategy, meaning that your risk (and profit) is defined upfront. This is achieved by selling a put option at a certain strike price, and simultaneously buying another put option at a lower strike price as insurance. The goal is to profit from a rise in the stock's price, or a price-decline that doesn't go under the short put of the vertical spread. In the case of META Platforms, Inc., we can construct the following Vertical Put Spread:
Sell to Open META 18-Aug-23 275 Put
Buy to Open META 18-Aug-23 270 Put
The premium received for this strategy is $150, which also represents the maximum potential profit. The maximum risk, or the most you could lose if the stock price falls significantly, is $350. The breakeven point at expiration is $273.5.
The probability of profit for this strategy is 77.86%, with 43 days to expiration. The implied volatility rank is 49.69%.
(the probability of profit is the theoretical probability of profit based on the delta of the options)
This strategy allows you to potentially profit from a bullish outlook on META, while limiting your potential losses.
Sell to Open META 18-Aug-23 275 Put
Buy to Open META 18-Aug-23 270 Put
The premium received for this strategy is $150, which also represents the maximum potential profit. The maximum risk, or the most you could lose if the stock price falls significantly, is $350. The breakeven point at expiration is $273.5.
The probability of profit for this strategy is 77.86%, with 43 days to expiration. The implied volatility rank is 49.69%.
(the probability of profit is the theoretical probability of profit based on the delta of the options)
This strategy allows you to potentially profit from a bullish outlook on META, while limiting your potential losses.
Strategy: Iron Condor (Neutral)
The Iron Condor is also a defined risk strategy. It involves selling a vertical call spread and a vertical put spread on the same underlying asset with the same expiration date. This strategy is typically used when a trader expects the price of the underlying asset to remain within a specific range until expiration. In this case, we can construct the following Iron Condor:
Buy to Open META 18-Aug-23 330 Call
Sell to Open META 18-Aug-23 325 Call
Sell to Open META 18-Aug-23 270 Put
Buy to Open META 18-Aug-23 265 Put
The premium received for this strategy is $243, which also represents the maximum potential profit. The maximum risk, or the most you could lose if the stock price moves significantly, is $257. The breakeven points at expiration are $267.57 and $327.43.
The probability of profit for this strategy is 51.87%, with 43 days to expiration. The implied volatility rank is 49.69%.
(the probability of profit is the theoretical probability based on the delta of the options)
This strategy allows you to potentially profit from a neutral outlook on META, where you expect the price to remain within a specific range.
Strategy: Vertical Call Spread (Bearish)
The Vertical Call Spread, also known as a Bear Call Spread, is a defined risk strategy that profits from a bearish move in the underlying stock. It involves selling a call option at a lower strike price and buying a call option at a higher strike price, both with the same expiration date. This strategy is typically used when a trader expects the price of the underlying asset to decrease.
Buy to Open META 18-Aug-23 330 Call
Sell to Open META 18-Aug-23 325 Call
Sell to Open META 18-Aug-23 270 Put
Buy to Open META 18-Aug-23 265 Put
The premium received for this strategy is $243, which also represents the maximum potential profit. The maximum risk, or the most you could lose if the stock price moves significantly, is $257. The breakeven points at expiration are $267.57 and $327.43.
The probability of profit for this strategy is 51.87%, with 43 days to expiration. The implied volatility rank is 49.69%.
(the probability of profit is the theoretical probability based on the delta of the options)
This strategy allows you to potentially profit from a neutral outlook on META, where you expect the price to remain within a specific range.
Strategy: Vertical Call Spread (Bearish)
The Vertical Call Spread, also known as a Bear Call Spread, is a defined risk strategy that profits from a bearish move in the underlying stock. It involves selling a call option at a lower strike price and buying a call option at a higher strike price, both with the same expiration date. This strategy is typically used when a trader expects the price of the underlying asset to decrease.
Here, we can construct the following Vertical Call Spread:
Sell to Open META 18-Aug-23 320 Call
Buy to Open META 18-Aug-23 325 Call
The premium received for this strategy is $130, which also represents the maximum potential profit. The maximum risk, or the most you could lose if the stock price moves significantly, is $370. The breakeven point at expiration is $321.3.
The probability of profit for this strategy is 62.65%, with 43 days to expiration. The implied volatility rank is 49.69%.
(the probability of profit is the theoretical probability of profit based on the delta of the options)
This strategy allows you to potentially profit from a bearish outlook on META, where you expect the price to decrease.
The strategies explained above are short volatility/limited reward strategies intended to take advantage of a higher theoretical probability of profit. There are of course a lot of other strategies possible. For example: if expecting a significant directional move, you can consider owning a long put or long call strategy, or a long put spread or long call spread. In a future article I'll explain the differences between the short and long strategies in general.
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