My Top META Trade After Earnings

With earnings behind us for Meta Platforms META, the stock’s resistance now sits near $700 while support is down near $560.

The chart is telling me that a rotation into that support before the next move up could be ahead. 

Here’s how I’d use options to trade that move. The best way to do this is with a put butterfly on META into the end of the summer. 

The long put butterfly is a combination of a long put spread and a short put spread. The overall position is ‘technically neutral.' But if we trade into support and remove the trade near the middle strike, we are essentially taking a stance that the chart should fade to support before its next rally. 

With META’s relative resistance zone sitting at around $700 and support near $560, the option chains are pricing in a move that is $111 from the current price. With this trade, we are well inside that range to collect profit:

• Buy to open 1 META 19 Sept 590 puts 
• Sell to open 2 META 19 Sept 560 puts 
• Buy to open 1 META 19 Sept 530 puts 

The cost of the trade as of this writing is $2.15, which represents the total risk for the position. 

The breakeven price of the stock at expiration on this trade is calculated by subtracting the debit paid less the $590 strike. $590 + $2.15 = $592.15. The maximum return is the distance between the $590 and $560 strikes less the cost of the debit = $30 – $2.15 = $27.85 (or $2,785).

There are two possible ways to leave this trade:

1. Hold the option until the strike tests $560 and leave the trade with whatever profits sit in the position. 
2. Set an alert for your max loss – if the option erodes to less than 50% of its price. Sell the position if your risk thresholds are breached.

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