Weekend Review

Options Action –

Guess what stock they started off talking about? Facebook (FB – 38.23) of course. It appears options on FB will be listed after Memorial Day, but this very large (not the largest ever) IPO had everyone’s attention on Friday. An interesting comment alluded to the appearance that the market shrugging off all news and focusing on FB for the last couple of week. The news that has been ignored has been mostly bad. It may just be that attention to the bad may return reality to the stock market. 

As a derived play on FB, a bearish recommendation was made on Google (GOOG – 600.40). The idea here is based on money flowing into FB and coming out of GOOG. The structure of the trade is a put spread looking out to June expiration. The detail involves buying a GOOG Jun 585 Put at 14.00 and selling a GOOG Jun 560 Put for 7.50. The net cost of this trade is 6.50 with a potential profit of 18.50 if GOOG is below 560.00 at June expiration. Below 579.50 and above 560.00 the trade makes a partial profit. 

The second trade was on Wells Fargo (WFC – 30.94). The trade ides is based on the stock setting up for a technical breakout along with bullish fundamentals. The trade is pretty straightforward purchase of a call based on the expectation of higher prices over the next few weeks. The specific trade recommendation is to buy the WFC Jul 33 Call for 0.95. This trade works with a 3.01 gain (from Friday’s closing prices) in WFC by July expiration.

Investor’s Business Daily – Monday Edition

The Investor’s Corner column on Page B5 is a great history of how the CANSLIM investing methodology approach would have worked with SolarWinds (SWI – 44.05) over the past few months. The focus shows how the stock reached a plateau for some time and then continued on with a new leg up.  

The Options Institute is teaming up with IBD in June for a very special class dubbed the Investor Training Camp which is going to be held June 13 – 14. More information may be found at www.cboe.com/camp

Barron’s –

Although FB options don’t list for another week or so, the Striking Price column covered some significant events that will be on the horizon for FB. In three months FB will be eligible for addition to the Nasdaq 100 Index which is the basis for the PowerShares QQQ Trust (QQQ – 60.81). Also, be aware that the first lock-up for insiders expires in 91 days – this means that an extra 171,000,000 shares will be available for sale in the market.