My Favorite Magnificent 7 Trade For This Week

Meta Platforms Inc. META continues to do the heavy lifting among the Magnificent Seven companies. Prices are holding in a channel that shows a potential upside drift into the stock. Because of the geopolitical and economic uncertainty, we may get a wiggle downward next week, but the dips make for great buying opportunities. 

That makes this a perfect time to make a “butterfly” trade on Meta.

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This is how I do it.

Meta’s current relative resistance zone sits right around $740, but trading could be choppy for the next week, so I’m waiting to target entry on any dips into $730. This will minimize risk exposure, create a cheaper entry, and allow for better profit targets. Support sits near $650. 

Our trade today, a long call butterfly, is the combination of a long call spread and a short call spread that share the same short strike and the same expiration date. Though the position is often defined as ‘delta neutral', this trade certainly delivers profit if price action rises as expected: 

• Buy to open 1 META 18 Jul 730 calls 
• Sell to open 2 META 18 Jul 750 calls 
• Buy to open 1 META 18 Jul 770 calls 

Set an alert for prices near the middle strike so that you are very aware of the motion into the middle strike, as this is where the maximum profit will engage into expiration. You will also notice that price action for the butterfly is more sensitive to fluctuation the closer we are to expiration. 

The long call butterfly holds a current debit of $2.13 at this writing and represents the total risk incurred in the trade. The breakeven price of the stock at expiration on this trade is $732.13 less commissions. 

The total highest potential profit is $20 (the distance between 730 and 750 strikes) less the cost of the debit incurred by buying the call butterfly, so $20 – $2.13 = $17.87 less commissions. 

It is extremely rare to collect all this premium in this kind of butterfly. Consider price action information to drive your risk and profit parameters, and consider profit targets near resistance prices and 100-200% returns, as a suggestion. 

The strategy provides several ways to exit, but I will discuss only the two main ones: 

1. Sell the call butterfly when the profit goal moves into your target parameters, particularly once the middle strike is tested near expiration. I often look for 90% to 300% return for these types of call butterflies, where the first long call strike is out of the money. 
2. Sell the call butterfly when your loss threshold is breached. Customarily, this is 50% for me. 

The more advanced trader might consider rolling the short strikes down over time if the price continues upward. 

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