META UOA EXCLUSIVE: BULLISH CALL OPTIONS

On a day where the market is taking a pause, it’s key to look at what’s performing well. With the QQQ down -1.49%, the SPY lower by -1.35%, and most big tech stocks deep in the red, one mega cap is outperforming the rest: Meta. 

First, let’s take a quick note to talk about why stocks are falling today. There are really two reasons: 

1. This is a much needed pullback after consistent bullish stock market movement
2. The jobs report came in at more than 2X expectations

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That second note is the one that most of the media is focusing on. “A strong jobs market means the Fed will have to hike rates,” said people who weren’t paying attention. July rate hikes were already priced-in, and they still are. Additionally, at the most recent FOMC meeting, Jerome Powell cautioned against targeting employment data and the labor market in his fight against inflation, noting instead the high costs of shelter and rent. 

In fact, for a market whose prime concern for the past year and a half has been a painful recession, this is probably the best possible news the market could ask for. This means economic strength. This means the likelihood of a “soft landing” has increased. This means, for all intents and purposes, a recession is likely not in the cards. Agree or disagree — I was saying this months ago when it was a very unpopular opinion, and I’m still saying it now. This employment report and other recent economic data confirms my thesis.

All that aside, I say that to say, this is probably not the time to get spooked out of your bullish positions. For that reason, we’re using this red-day in the market to target bullish activity we’ve witnessed in Meta Platforms. 

As an added note about bullishness, someone bought more than $500K worth of SPY $440 calls expiring tomorrow for about $0.70 per contract. That isn’t the bullish activity we’re referring to here, but it’s always good to see a little confirmation trade. 

What we’re looking at instead is a series of bullish trades made in META this morning. Buckle up, we’ve got a lot to note.

With META trading at near flat for the day, we’ve noted an $838K trade made in META at the $325 strike expiring in September 2023 in call options that cost about $10.85. This would encompass the stocks earnings (estimated to be on the last week of July) with a hefty amount of time left afterwards. With the company’s Threads product only beginning, a new Quest product soon to be released, and the continuing impact of job cuts to the company’s bottom line, they’ll likely have plenty of positive things to talk about. 

If that’s too pricey for you, there was also significant, consistent buying in the $295 call expiring tomorrow, which are currently trading for about $2.50 per contract, including one trade made for about 173K in premium as a sweep purchase. These options can sometimes be a risk coming out of a tough red day for the market. 

Lastly, there was a large trade made in the $305 strike Meta calls expiring July 14th, which currently trade for about $2.90. If you’re opting for a lower cost option which still has a somewhat higher likelihood of success, this “smart money” purchase may be of interest to you.

In summary:

• Despite a big red day for the market (on news that is, realistically, quite bullish), Meta is holding up strong
• There was significant buying in:
  • The $295 strike 7/07 call options
  • The $305 strike 7/14 call options
  • The $325 strike 9/15 call options
• As the market continues its rally into earnings season (likely), Meta may be one of the bigger beneficiaries.
• Personally, I like the $325 strike 9/15 call options best for my particular style of trading. These allow plenty of time to be right, they aren’t far out of the money, and they include at least one major catalyst (earnings).
• As a cheaper alternative, while the 7/07 $295’s have received plenty of action, I would opt for the $305 7/14’s. There’s less theta risk, more time to be right, and more time for the market to wash away today’s blood in the streets. Additionally, they’re near the same price.

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As always, please be safe out there. Only trade with what you’re willing to part with. As a rule, we like to use no more than 1% of our portfolio on any particular position. Your number may be different — that’s okay — just make sure it’s something you’re comfortable with. If you score a double, consider taking some profit off the table. If you lose half of your initial investment, consider cutting the trade and moving on to the next one. 

Happy trading rebels.