A Safer Way to Buy Facebook

Facebook (FB) has had quite a run lately from the mid $20's in July to over $48 today, and it's not showing much in the way of letting up the momentum.  They will report earnings on October 22nd, and we'd like to see confirmation of growth and actual EPS before getting into a stock position.  Analysyts seem to think FB is on track for additional upside, as they've received 6 upgrades, 2 downgrades and 2 firms initiating coverage since July 2013.  We think FB has its act together and will continue to move higher, but we're not early on this move so we're not going to buy the stock just yet.

Instead we are selling the November 2013 $43 Puts for $1.44 today, these options expire in 52 days, and if FB trades below $41.56 then we will have an opportunity to buy the stock at $43 minus the premium collected from the put.  FB is trading at $48.90 right now, and this would represent a discount of 15% on the stock from its current price.  We'd like to see a pull back before we get into this stock position, however FB could continue to rise and go parabolic like NFLX or TSLA in which case we'd miss out on those gains.

This is a safe strategy to play FB, and in the short term we are happy collecting premium on the puts or buying the stock at $43.  There is a 21% probability that FB will trade below $41.50 by November option expiration, so these options are very likely to expire worthless.