Are Social Media Stock and Options the Next Big Thing?

Are Social Media Stock and Options the Next Big Thing?
July 30, 2015 Market Traders Institute

Guest Post by Chris Irvin, Director of Options Education

Hi everyone! As you know, it’s been a busy week for social media stocks. Here’s what the past couple of days looked like for me and most of my fellow traders.

These major social media earnings are coming to a close and I’ve received a lot of questions about how a professional trader could move forward.

I was able to touch base with my students about this and we discussed the matter in depth, during yesterday’s Top OP Educational Trade Alert.

(Thank you to everyone who responded! It’s great to have a strong support system of traders to bounce ideas off of.)

For those of you who aren’t in the loop, here’s a quick update of how I’m reacting to these social earnings and what I plan to do next to capitalize off the market’s movements.

TWTR

Twitter is looking good for a Straddle. The current price of the straddle is 16.9% of the current value of the stock.


Honestly, that’s a touch higher than I would like, but it’s not uncommon for cheaper stocks to have the straddles cost be a larger percentage of their value. The good news is that the average overnight move (based over the last four announcements) is 16.35% and the average max move is 23.3%. Let’s break it down a little further:

Analyst Price Targets
? Both my high price and low price targets are beyond the levels that would need to be reached to make the straddle profitable.

Previous Price Levels
? The stock will not have to reach new highs or new lows to reach a profitable level for the straddle and based off my analysis there’s a good chance this could happen.

Fibonacci Retracements and Extensions
? If TWTR moves up after the announcement the price will need to reach a .382 retracement of the bearish Fib. If it moves down the straddle price target will be reached prior to the 1.618 extension. Again, this is very doable.

Trade Opportunity: ????????

 

YELP

YELP is providing us with another social straddle opportunity. However, the average overnight price movement of the stock is 12.37%, and the average max move is 22.27%. This is not good news for the straddle. The stock is going to have to move to the extreme of the max move average in order to turn the straddle into a profitable opportunity and I don’t see this happening based off my charts.


Analyst Price Targets
? Targets are within reason for this straddle. The high side and low side are both beyond the profit targets that I would need to be required in order to profit, making me one happy trader!

Previous Price Levels
? YELP’s been beaten down for the past 10 months. Lower-highs and lower-lows seem to be the status quo. If the trend is any indication, this could be a rough ride for those who own the stock. But take a look at the Stochastic RSI and you’ll see why this could be positive for a bearish move.

Fibonacci Retracements and Extensions
? Based off my charts, the necessary price target to reach the bearish target will be outside the Fib “D” extension, making this a very risky option for my personal trading style.

Trade Opportunity: ????

 

FB

The price of the Straddle as a percentage of the stock price is 13.04%. This is a reasonable price for the straddle but the bad news is that the average overnight move is only 3.75% and the average max move is 6.9%. This is a big negative.

[Chart Removed – Proprietary Information for MTI Ultimate Options Course Students Only.]

Analyst Price Targets
? The analyst price targets are actually a positive. My high sides and low sides are outside the projected price levels that would need to be achieved in order for the straddle to profit.

Previous Price Levels
? If FB moves higher following the announcement, it will need to move to all time highs in order to achieve a straddle profit and based on it’s movements in the past, this could be a stretch.

Fibonacci Retracements and Extensions
? If the stock moves up after the announcement my “D” extension is well above the straddle target. If the move is bearish, the retracement for straddle profit will be at the .50 retracement level.

Facebook may have two positives, but the negative is major. Facebook does not have a history of moving significantly following the most recent earnings announcements, this does not bode well for a straddle for my personal trading style.

Trade Opportunity: ????

 

LNKD

[Section Removed – Proprietary Information for MTI Ultimate Options Course Students Only.]

Hope this helps as you’re wrapping up your trading plans for the week. As always, my team and I are dedicated to bringing you the latest market moves and showing you how we’re planning to capitalize off the stocks movement. I’m handing off some final notes with James Bishop so he can share it with you in our upcoming workshops.

Get filled in by registering with the form below. Until then, feel free to share your stock and options trading experiences with me on Facebook and Twitter.

Happy Trading,
Chris Irvin – Director of Options Education

0 Comments

Leave a reply

Chat live with one of our friendly team members.

Fill out the form below to start a chat session.

×

Welcome to Market Traders Institute Support