By Gunjan Banerji Updated Aug. 3, 2018 5:27 p.m. ET
Shares of technology companies have swung wildly—but options investors don’t need to take a bullish or bearish stance to profit from their recent volatility.
Investors ambivalent about the future direction of stocks like Facebook (ticker: FB) but looking to take advantage of the high turbulence in tech shares could tap a trade called a “strangle” on the social-media giant, says Tom Sosnoff, founder of tastytrade, an options-focused media company.
This would entail simultaneously selling both a call option and a put option expiring in September at $190 and $155, respectively. Calls confer the right to buy shares; puts give the right to sell shares.
The high expected swings in the stock and its liquidity—or ease of trading—make it a good time to sell the options, Sosnoff says. Investors have flocked to Facebook options lately, and when expected swings are higher, options prices rise. The shares have also recorded big swings, Trade Alert data show. An investor, he says, would earn $300 from selling the two contracts, which wager that the stock will stay relatively rangebound—that is, won’t fall below $155 or higher than $190 over the next seven weeks.
Because expected swings in tech shares are high, it’s a profitable time to put on the trade. Facebook, which was crushed after its earnings report on July 25, closed at $176.37 on Thursday, down about 8% since the beginning of June.
After Facebook’s earnings revealed a tempered outlook on advertising growth, tech has been on edge. It was one of the worst-performing sectors in the week before it led the stock market