Ahead of Facebook Inc (NASDAQ:FB) earnings that will be available tomorrow the CNBC’s Options Action Traders team brainstormed about some strategies that would combat audacity. The stock is prone to massive shifts in price as Facebook Inc (NASDAQ:FB) shares are a bet that many partake in. The numbers indicate a 47.61% year to date upswing, to a level of $80.67, and it might be the case the company could lose some of the faith investors had in it.
“The options market is implying 6.5% one-day move in either direction. The stock had gone from $80 down to $70 last week in its down draft. Now, it’s all the way back up, it closed at a new all-time high today. So, I think if you’re long in this very widely held stock here, you want to think about how the options market is thinking about this event,” suggested Dan Nathan.
Mr. Nathan proposed to sell the December $90 call for $1.20 and use the proceeds from the transaction to purchase the December $70 put. This strategy implies a profit for all the values beyond $80 and losses for any spot below $70, but it allows to hedge any risks associated to violent price shifts for Facebook Inc (NASDAQ:FB)’s shares. Obviously, this is not the only way to make sure that money will not be fretted away. An alternative to the above tactic for preventing losses on long positions in Facebook Inc (NASDAQ:FB) was presented by Michael Khouw, but it involves a little more ingenuity.
“The one thing I would say that was that into catalyst, the premiums for options tend to be elevated. I would probably consider a put spread collar here, where I would be able to buy a closer to at the money put and be short a couple more options in this case as a mechanism to protect myself,” said Michael Khouw.
Facebook Inc (NASDAQ:FB) doesn’t seem to be going down as it is slightly bumping in price, with 0.25% in pre-market, some $0.20 above its current value. However, it’s much easier to prevent a problem than to solve it.
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