Meta Platforms reported strong quarterly results this week. So, today we'll look at a post-earnings trade in Meta stock.
Traders are bullish still on tech as we press into the next cycle. We'll position a unique butterfly spread using calls that allows us to participate in a sideways to upside move into March. According to IBD Stock Checkup, Meta stock gets an excellent 98 Composite Rating on a scale of 1 to 99.
Let's look at the trade structure of the long call butterfly in Meta stock.
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A long call butterfly combines a long call spread and a short call spread that share the same short strike.
Meta Stock Today: The Setup
The long call butterfly (positioned for sideways to upside) — notice that this butterfly below will deliver returns even if the chart expands to numbers into $700 but does not breach $720. The butterfly here is unique as the first call strike is in the money, meaning the price of Meta stock currently is higher than the strike.
- Buy to open 1 META March 21 call at the 680 strike price
- Sell to open 2 META March 21 700 calls
- Buy to open 1 META March 21 720 call
The long call butterfly holds a current debit of $1.83 per set of options, based on recent trading. This debit of $183 for the 100-share block is our total risk in the trade. The total highest potential profit is $20 (the distance between strikes) less the cost of the debit ($1.83), or $18.17 less commissions, or $1,817.
It is extremely rare to collect all this premium.
Instead, I like to consider 200%-300% profit of the investment but here, both big moves and sideways moves can deliver much higher returns.
Trade Management
Lets identify key chart levels in Meta stock.
The relative resistance zone sits right around 715. The relative support holds near 650.
In this strategy, the market offers only two choices to exit the trade. One, sell the entire butterfly when it is performing at your target parameters, particularly once the middle strike price is tested. Two, sell the butterfly when it hits your trade parameters for risk.
Anne-Marie Baiynd is a 25-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." You can find her on X at @AnneMarieTrades and on the IBD platform
