The stock is notorious for being a takeover candidate. Although this pops the stock, rumors never amounted to any real news. The stock rallied yesterday over 3% for just this reason as a report that Facebook is looking for an unnamed cybersecurity company to purchase. This makes sense for them, as recent hacks have caused major problems for the social network site. The chart is starting to take on a much better look, as it recently broke the year’s downtrend and is above all the major moving time frame averages.
The rally off the low of 14.20 prompted by Googles announcement has now formed a new uptrend which broke the years downtrend. The high for the year at 19.36 is now the upside target for the bulls.
The earnings next week can be an upside catalyst but even if the reaction is negative we can use options and go out 3 weeks in time relatively cheaply to let the upside thesis play out.
An in the money call spread to take advantage of the already built in intrinsic value will be to buy the 17 strike calls and sell the 19 calls to reduce our cost.
Such a spread can be done for about $0.80, meaning the profit potential is $1.20 or a 150% return.