Will Facebook (FB) follow the path of Google, the Financials, Caterpillar and a whole host of others? The market is ready to attack and punish any stock that doesn’t have complete blowout earnings. So how do you play FB going into earnings?
Technically, there is massive support around the $151-$152 area and some resistance above at $168 and then between the 50 DMA and 200 DMA around $171 (see chart).
Implied volatility is expensive and the option market is pricing in a move on earnings of approximately $10. Given the big support down at the $152 area, and the over-riding issues that FB is facing regarding privacy, etc… a short Iron Condor is a fantastic strategy to capture premium.
We can sell this week’s 152.5/150 and 167.5/170 Iron Condor and collect a credit of $1.25. Our break-even points on this spread are $151.25 and $168.75. I think this is fantastic reward/risk. As with all of our spreads, our RISK IS PRE-DEFINED. Since the width of each spread is $2.50, the most the iron condor can ever be worth is $2.50.