Option Trade: Neutral Play Could Earn As Much As $1,220 In Facebook Stock

TL;DR

This video discusses a neutral butterfly option trade strategy for Facebook stock to benefit from potential price stability in the coming month.

Transcript

[Applause] hey option traders facebook stock has bounced nicely off recent lows so today we're looking at an option trade that will benefit from neutral price action over the next month after a strong run facebook may be due for a pause here but given its solid track record it's reasonable to predict it won't pull back too much as such i would look... Read More

Key Insights

• 😘 Facebook stock has bounced off recent lows and may be due for a pause.
• 🦋 Butterfly option trades have a tent-like shape with the potential for large profits around the short strike.
• 🔰 Virtual trading is recommended for beginners to understand the complexities of such option trades.
• 🤑 Practice with virtual accounts before risking real money in options trading.
• 😚 Options are complex, and investors can lose more than 100% of their investment.
• 💁 The video suggests checking out investors.com options for more trading tips.
• 💪 Facebook's solid track record makes it reasonable to assume a limited pullback after a strong rally.

Questions & Answers

Q: What is a butterfly option trade?

A butterfly option trade is a neutral income-oriented strategy involving three different strike prices within the same expiration date. It is a limited risk and limited profit trade, with the potential for higher profit than loss.

Q: Why is Facebook expected to have neutral price action?

Facebook stock has recently experienced a strong run, but given its solid track record, it is reasonable to predict that any pullback will not be significant.

Q: What are the maximum loss and maximum gain of the discussed trade?

The maximum loss potential on the butterfly trade is around $780, while the maximum gain is calculated to be $1220.

Q: How can one aim for a 20% return on capital at risk?

In this case, a good aim for the butterfly trade is to make around a 20% return on the capital at risk, which would amount to approximately $155.

Summary & Key Takeaways

• Facebook stock is expected to take a breather after a strong rally, but a significant pullback is unlikely given its solid track record.

• The video explains a neutral butterfly option trade strategy for the April expiration period, which involves three different strike prices within the same expiration date.

• The potential profit on this trade is higher than the potential loss, and the aim is to make around a 20% return on capital at risk.