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Profiting From Facebook Inc (FB)’s 52 Week Low Option Prices: Dan Nathan

A very interesting and profitable trade opportunity has developed involving Facebook Inc (NASDAQ:FB)‘s options. On CNBC‘s program, Options Action, Dan Nathan and Michael Khouw discussed the formulation of the best risk reward strategy that could benefit from the low prices of Facebook’s options.

Facebook Inc (FB), JetBlue Airways Corporation (JBLU)

“[…] So really what I want to do here is implied volatility, the price of the options is really low, and I am going to tell you that with vol dampening there is actually somebody there buying stock at $74-$75, and then they have sellers in there as well. So, with all of this the option prices look really cheap. They are almost at their 52 week lows […],” said Nathan.

What Nathan suggested was selling the Facebook Inc (NASDAQ:FB) call options with the strike price of $82.5 and December expiration for $0.4, to partly finance the purchase of call options with the strike price of $75 and priced at $2.4 with the same expiration date. With a $2 risk this options position is set to profit if Facebook Inc (NASDAQ:FB)’s stock price lies anywhere in the range of $77 to $82.5.

The most used social media website of the world was trading at $74.88 when the closing bell rang on the last trading day. Khouw was also very positive about Nathan’s option play and even said that the option position is virtually in the money as Facebook Inc (NASDAQ:FB)’s stock is definitely headed higher by the end of December, given the action that the stock market has been getting over the last couple of weeks.

“[…] Another great thing about this trade is that by selling those $82.5 calls, the stock will have to actually break out above all time highs before you are going to regret selling that thing. So, actually the way he structured this trade and the way that the option price is set up actually makes it a good way to play it into the end of the year,” said Michael Khouw

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