For investors who scored big on Meta, a way to protect those profits and generate income
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Meta Platforms (META) , formerly known as Facebook, is setting new highs following an absolute blowout earnings report and dividend initiation. As a current shareholder that has enjoyed a sensational recovery ride in 2023 after a horrendous 2022, I want to cautiously approach these new all-time highs by using an options strategy to create some income and protect my profits. META 1Y mountain Meta, 1-year For clarity, this is not a bearish view on Meta. Meta was my largest 2023 holding in the Essential 40 Stock Fund (ESSIX) portfolio that I manage. In the wake of Meta’s best quarter and year ever, I believe the strength of the stock remains intact. Yet, there could be some potential short-term volatility as I envision resistance in the stock price near $500. For the bulls, the data was delicious. Meta said on their earnings call that sales increased to $40.11 billion in Q4, up 25% year-over-year. The company also announced a $50 billion increase in its share-buyback authorization creating an organic stock buyer up here in the $400s. If you are on board that Facebook will enjoy its new record high levels but will possibly take a short-term pause up here, the below call spread should allow you to collect some premium and protect any downward movement in the high-flying stock. The trade This call spread can be established by selling an at-the-money call and using some of the premium collected in writing that call option to define risk by then buying an upside out-of-the-money call. The same expiration will be used for both call options. Technically, Meta is substantially above its 50-day and 200-day moving averages while also currently living in overbought territory with its relative strength indicator reading of 84. (in general, RSI is considered overbought when above 70 and oversold when below 30.) The Trade: Sell a call spread on Meta Platforms (META): Sold the regular expiration February ATM $470 call for $16.50 Bought the regular expiration February OTM $500 call for $5.50 The result in the sale of the lower strike call option and the purchase of the higher price call option results in an investor collecting $11, which is $1,100 for each spread sold. As long as the stock settles under $480, an investor makes money on this trade This call spread has a defined risk, limited potential and is typically used to hedge an investor’s underlying long exposure to a stock. It can also be utilized simply as an income strategy as the risk is defined and an investor does not necessarily need to own the underlying stock. DISCLOSURES: (Long FB, sold call spread) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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