Meta Stock Analysis

Meta has been displaying a consolidation pattern after the big breakout it had on February 2, 2024. Right now implied volatility is low in the stock and that can be a play for a straddle. Meta has a Bollinger band width of 17.1, which is not exactly historically low, but low enough. The Bollinger band width was lower but as we all know on August 5, 2024 markets worldwide took on

First the Bull Case:

Bulls can argue that Meta is displaying a bull flag, which is when the stock goes up in a near linear line, then consolidates. Meta has been range-bound since February 2, and the consolidation pattern bulls can argue is a bull flag.

Bear Case:

Meta since reporting earnings in February of 2024 has an unfilled gap up. The gap is from February 1 and February 2, 2024. Bulls can argue that if the stock were to break below the consolidation pattern, the gap can be filled and support can be found near $400.

Straddle Position:

Either way, what is working right now is that implied volatility is low in Meta and a straddle position can make sense. Since options prices are low, buying a call and put option for the same strike and same expiration date makes sense here. This way regardless if Meta breaks up or breaks down what we need is a move in either direction.

If the big move happens in the short term another way the straddle makes money is by an increase in implied volatility. The increase in implied volatility will make the straddle profitable.

Risks:

Risks to consider in this trade is that when the move happens is unknown, and the stock could trade sideways longer than the expiration date.

Time Decay: The longer the stock trades sideways, time decay will eat away at the value of the straddle, however some of this can be mitigated by selling upside calls and downside puts that are closer in date. The sale of the options will help take in some credit on the straddle and reduce the cost. Selling options has its own risks also, the risk is that you are limiting your potential profit.