I was looking for stocks that looked like they were ready to break out, and Facebook came to my attention. Trading at about $165, I wanted to see what return I could get in the options if FB rose by 30% or so by 2019. Here’s what I found.
The spread from $200 to $210 could be bought for $2. In other words, a 27% move up over the next 10 months and my $2,000 would return $10,000. Both strikes were priced pretty high, but that was to my benefit, as I was buying the $200 strike and selling the $210. My net cost was $2/share for a $10 spread. At some point, I might start to increase my purchase size, but in general, I’ve been comfortable to stay with 10 contracts at a cost ranging from $1K-$3.5K. I’m also looking for returns that are over 3 to 1, as I can’t expect every trade to go my way. So far, I’ve had a good run.