Susquehanna Recommends Bullish Facebook (FB) Option Trade Amid Sell-Off

Susquehanna's derivatives strategist Christopher Jacobson is recommending clients buy a bullish 3-way spread in Facebook (NASDAQ: FB).

Specifically, they recommend a purchase of the September 180/210 call spread vs. a sale of the 160 strike puts.

Jacobson commented, "With volatility on the high side, we prefer to reduce the cost of exposure by positioning through spreads, rather than calls outright. Specifically, we look to gain upside exposure, albeit on a capped basis, while taking advantage of our willingness to buy on further downside, by using a sale of the September 160 puts to finance a purchase of the 180/210 call spread. Based on yesterday’s closing stock price of $176.41, the spread could be purchased in the market for $1.70. The spread would offer upside exposure above $180 ($181.70 expiration breakeven), but capped above $210. The maximum "win" on the spread of $28.30 ($30 spread less the price paid) would be achieved at expiration prices of $210 or higher. While $210 is below our new $250 target, we remind investors that this is a 12-month target. On the downside, investors would be taking on risk below $160, where they would have the obligation to buy shares in the event of a move below that level and assignment on the short put (setting up an effective purchase price of $161.70). While the downside risk is a meaningful one, it is one we are comfortable with. Currently, the position would be expected to move on a ~0.55 delta, meaning that its value would be expected to increase (decrease) by roughly $0.55 for every $1 increase (decrease) in the underlying."

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