As an options trader, all we are trying to do is maximize the reward for the risk we take. I don’t have a crystal ball. I do have tools at my disposal in the form of technical and fundamental analysis. Let’s take a look in Facebook (FB). Facebook has been a stock that has been hard to buy. What do I mean by that? Sure it’s easy to say “I want to buy FB” turn around, hit the green button and get long. That’s not how to approach things. You need to find a value point (some may call it an excuse) for entry and then be paid proportionately to the risk you are about to take.
Here is a chart from 5/5/15. It doesn’t take a genius to come to the conclusion that this chart is neutral to bullish. We see that we are at very solid support. We are right at the 200-day moving average as well as getting supports from the lows put in mid-March. FB has not been below its 200 DMA since its IPO. So, we have found the place for our “excuse” to get long. Do we sell a put spread? Do we buy a call spread? Neither. I don’t expect FB to take off like a rocket from this level. I expect it to find support here and grind up. A great way to take advantage of a bullish bias while taking in some front expiry premium is through a calendar spread. I signaled the FB 5/29 vs. June 82.5 call calendar for a max debit of $0.50
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