Dan Nathan's Options Strategy In Facebook
He thinks that the stock is probably going to trade above $100 before the company reports earnings on Wednesday, but after that he expects a pull back to the mid $80s. Investors should exploit high implied volatility and make a bearish bet or set up a protection if they are long, added Nathan.
He would buy the February 95 put for $3.40, sell two February 85 puts for $1 and buy the February 75 put for $0.30. The put butterfly would cost him $1.70 and if the stock trades below $93.30 and above $76.70, at the February expiration, the trade is going to be profitable.
It can maximally make $8.30, if the stock trades to $85. Below $85 the profit starts to trail off and it reaches zero at $76.70.
Nathan would wait for Facebook Inc to reach $100, before he makes the move.
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