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Trade: FB

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Sitting on Friday moving into the weekend the one thing I am noticing is that IV is starting to catch a bid. The market is down about 0.5% and there is probably a little fatigue working. I think the looming issue with the budget should push volatility up again even if nothing is really happening. The area that continues to be strong is mostly tech and the social media stocks in particular.

Facebook (FB) is now pretty much a new stock since the push into mobile. The success of that effort has caused the stock to more than double since last fall. Since the move has been so dramatic the upside calls tend to trade expensive as opposed to last year when traders could not give them away.

The market could pause a bit I don't want a lot of negative decay (or close to 0). Most of the trades this week have been ones that are primed to perform after the end of the month. This FB front spread is not an exception. The trade idea is to take advantage of the inverted upside skew and sell two OTM calls and buy one near-the-money for a credit.

The idea here is that FB makes a push up, and in the meantime we can watch Congress deliberate.

Trades: Buy to open 1 FB Oct 48 call for $1.18 and sell to open 2 FB Oct 50 calls at $0.68, or a net $0.20 credit.

FB earnings are after expiration. Note that there is a short call here so be mindful of the 1 short contract. If we get a sharp pull back we might buy in a call for the bounce toward earnings.

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Andrew Giovinazzi can be followed on Twitter at twitter.com/optionsvol

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At the time of publication, Andrew Giovinazzi held no positions in the stocks or issues mentioned.


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