The first discussion on the show was about Facebook (FB – 40.55) moving into the 40’s. This is a price area not seen since May 18, 2012. That was the day FB went public and the high on that day was actually 45.00. A share price in the low 40’s places the market cap for FB at around $100,000,000. This means FB is worth more than companies like American Express (AXP – 73.65), McDonald’s (MCD – 95.13), and Boeing (BA – 105.48). Also, I know half of you were wondering so I looked it up, Mark Zuckerberg’s stake in FB is worth $20,421,055,018. Also, for every point FB moves higher or lower Mark makes or loses just over half a billion dollars.
The first trade recommendation was on our friend Facebook and involves doing something many traders aren’t permitted to do by their broker, selling put. Based on the feeling that FB is going to stay above 36.00 between now and the third week in January a FB Jan 36 Put is sold for 2.05. If the stock remains above 36.00 and closes there on the third Friday of January the result is a profit of 2.05. Below 36.00 and the shares will be put to the position holder with the result being a long position in FB with a net effective cost (before commissions) of 33.95. The payoff diagram below illustrates this –
The second trade mentioned was on my generation’s Facebook, Microsoft (MSFT – 34.75). There was some discussion around the amount of MSFT calls (400,000) that traded on Friday after MSFT rallied on the announcement of Steve Ballmer’s pending retirement. One trade that was highlighted was a purchase of 20,000 MSFT Jan 2015 LEAPS Calls at 0.70. That’s a big bet that MSFT will be up by at least 32% between now and the third Friday in January of 2015.
Checking the charts MSFT actually recovered to a price level where it was before taking a dip on earnings a few months ago (35.22). The feeling is that the stock may be overdone to the upside and also hitting a resistance point. Based on the thought that MSFT is going to stall out and drift lower from here a bear call spread using the MSFT Oct 35 and 36 calls is recommended. A MSFT Oct 35 Call is sold for 1.00 and the MSFT Oct 36 Call is purchased for 0.60 and a net credit of 0.40. The goal is for MSFT to be under 35.00 at expiration in October which results in a profit of 0.40
A final trade recommendation was on Google (GOOG -871.20) and took into account VXGOG as part of the recommendation. The feeling is that VXGOG is low post earnings so there’s very little fear about the future of the stock. Based on a bullish outlook, buy Oct 855 Call 41.00 – Oct 895 Call 21.00 net 20.00. Breakeven is real close to the current market price.