Meta Platforms Bear Put Spread Could Return 135% in 65 Days

Meta Platforms (META) stock has started to slow down after the initial hype over their new personal AI agent (Muse) has died down.

Today, we’re going to look at a Bear Put spread trade that assumes Meta Platforms will pull back over the next two months.

A Bear Put spread is a bearish trade that also benefits from a rise in implied volatility.

The maximum risk for a Bear Put spread is limited to the premium paid while the maximum potential profit is also capped. 

The maximum profit is equal to the width between the strikes less the premium paid.

Meta Platforms Bear Call Spread

To create a Bear Put spread, we buy an out-of-the-money put and then sell another put further out-of-the-money.

Buying the December 18th put with a strike price of $700 and selling the $690 put would create a Bear Put spread.

This spread was trading for around $4.25 on Wednesday. That means a trader buying this spread would pay $425 in option premium and would have a maximum profit of $575.

That represents a 135.29% return on risk between now and December 18 if META stock falls below $300.

If Meta Platforms stock closes above $310 on the expiration date the trade loses the full $355.

The breakeven point for the Bear Put spread is $695.75 which is calculated as $700 minus the $4.25 option premium per contract.

Company Details

The Barchart Technical Opinion rating is a 88% Buy with a Strengthening short term outlook on maintaining the current direction.

Meta provides highly-targeted individual advertising and information services to corporations and other institutions. Meta's individual advertising targeting is based on information that they harvest from their users, who provide this information via their regular use of various Meta services that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality (VR) and mixed reality (MR) headsets, augmented reality (AR), and wearables.

Meta services also help people discover and learn about what is going on in the world around them, enable people to share their experiences, ideas, photos, videos, and other content with audiences ranging from their closest family members and friends to the public at large, and stay connected everywhere by accessing their products.

Conclusion And Risk Management

One way to set a stop loss for a Bear Put spread is based on the premium paid. In this case, we paid $425, so we could set a stop loss equal to the 50% of the premium paid, or a loss of around $210.

Another stop loss level could be if the stock broke above $780.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.