META is at fair value despite strong margins, A+ profitability and cash flows covering interest, though the valuation concerns him a bit. The chart may be a bearish double top, likely trading back toward the ~590 point of control but not to the 539-557 lows; earnings imply about a $40 move, a 650-730 range.

David is asking about meta earnings play. Yeah, absolutely. So we we'll talk about that and of course earnings plays are very specific. We have we have two things that happen over earnings.

The first thing that happens is that we have a volatility collapse. So we have a a high implied volatility. The reason that it's high is because we have an unknown factor. So we have uh it the stock could be very volatile.

The second thing that happens is that we have a directional move. These are uncorrelated. So when when we look at the implied volatility we know it will collapse because the event is unknown and then it will become known and therefore the implied volatility which is high prior to the earnings event will be low post earnings event.

We know that that occurs, but there's a that second factor which is the direction. And if the stock moves up after earnings, then that drives the implied volatility even lower because as stocks move up, there's less potential movement for them.

There's like, oh, we had a good earnings, the stock is moving up. This is good. Everybody's euphoric. There's not a lot of worry. Implied volatility typically drops. So we have two things that can drive implied volatility to decrease.

We have the earnings event itself and we have the potential stock movement to the upside. Now there is something that can create more intrinsic uh not intrinsic but there's something that can uh there's something that can contribute to higher implied volatility and that is a down move in the stock.

So there is occasions, there are events when the implied volatility doesn't collapse as much. It's still high and it still comes down. It just may not come down as much. But in general, when I'm playing earnings, I am looking for high volatility trades.

Secondarily, I'm looking for the price movement. So, we'll we'll take a look. We're going to get into that.

Let's look at Meta. And we can see a totally different chart here. You know, these are these are big companies. These are big market caps. And we saw some some action. Now, this one is not so clear, but we we can see this point of control that occurred when we when we saw the price action trading around.

We can see that there's a move one way or the other. And this when it was here, when it was kind of loading up around this point of control, we saw this gap to the upside. Now, this could be a little double top, which is in indicates a a bearish move.

And my thinking on this is that we would typically be trading down closer to the the normal the point of control because this is where a lot of people were buying. So sellers are taking profits above and buyers are buying when we get down below the 200 day moving average or around this point of control.

And Meta of course has this earnings coming up. So, we can see that here on Trading View right down at the bottom. We've got uh Wednesday, October 21st in the evening. So that is tomorrow uh after the close we have a we have a earnings report coming out.

What I would do from looking at this chart is I would do two things. First thing I would look at is where the 200 day moving average is. This is very very important. It's around that 632 level.

Second thing I would look at is where this point of control is. It's around 590. And then I would go to some services and I would take a look at what what the potential or the what the fair market value is of Meta going into the earnings.

We don't know what it will be after. But if we were to look at Meta right now, we can see fair value being 689. Stocks trading at 689. So it's like right it's right there. It's right at at fair value.

This is good. This is a good thing when we look at stocks that are above uh fair value. If we were to look at um so we look at uh meta here on seeking alpha uh valuation showing as an F.

So this is showing it's slightly overvalued. This that investing.com showing that it's at fair value. Profitability is an A+. This is something very important in high interest rate environments.

So we need to know that they are making lots of money and that they are profitable. It's not they're not sitting around u not making money.

So in in this case when we look at Meta u impress impressive gross profit margins a prominent player in the interactive media services industry of course everybody knows what Meta does you know they got their Meta glasses they've got Facebook they've got Instagram they're absolute powerhouse cash flows can significantly cover interest payments one of the things that Meta is doing is they're putting a lot of money into AI but they have a lot of money they make a lot of money so who cares you know that I think that's how we we look at this valuation does concern me a little bit.

So, it depends on how I want to play it. Also, if I look at this one-term one-year chart, so I like seeking Alpha because it just shows here's a one-year return, 5.84%. This is a relatively low uh low moving trade.

If I was looking at something like this, and I would look at two things that I I would like about Meta is I would know that the market cap is huge. Of course, they have potential upside.

What do the covered call ETFs look like on these? because I can't most people can't sell a a meta covered call. Like they're buying $68,000 worth of stock. So in order to have this less than 3% of your portfolio, you have to have a $2 million portfolio.

And I know there's a lot of people out there that are like, "Wow, I don't have a $2 million options trading portfolio." You know, I'd have a $50,000 option trading portfolio. Well, that's when those covered call ETFs come into play.

So those are something to consider with stocks like this because the performance can be great even on a year where it's down 5.86%.

Okay, that is long-winded. So Meta, we're looking at this. I'm looking at the chart. You know, 543 being the low over here. We've got a low 539, 557. Boy, those are like the low lows, right?

So, what happens if we have a big drop? Fair market value is already high. I don't expect that we're going to drop that low, but let's take a look at it anyways. What can we do?

So, I'm going to go over to to Mumu. And the reason we're using Mumu is because they've great charting. So, I'm going to go to Meta. Look at Meta here. So, 689. got some ranges marked on here.

Uh this was from a a previous trade and we can, you know, we can move those around. It's nice little way. This is what I like to do. These are like my goalposts, you know, like where am I going to where am I going to potentially make money?

So on the downside, that that 590, we looked at that 590 level. That's near the the lower end of the of the point of control. So, we know that buyers are going to potentially stop step in if we get down to that 590 level.

So, what I want to do is I want to see with these earnings coming out, is there a chance that we can get into a trade where we can make any money down at like 59012? Not very much.

But what about a spread? If I look at this short put, if I was to look at the simulator here, I've got max loss of $58,000 for a max profit of $117. 95% chance of uh making money.

This is a terrible, terrible play because in the event that I make money, I make $117, but I have $58,000 tied up. I see a lot of people trade like this. I don't think this is a good good way to trade.

I think if we are going to trade, let's take a a position that has uh less risk on it. So, how do we define that risk? Well, the first thing we do is we put a a cap on it. So, I'm going to use an example that we'll we'll try to set something up for a $100,000 portfolio.

Does that sound good? 100,000. Um, if I wanted to take a trade in a $100,000 portfolio, I might want to risk 2%. Or even less of my account on a single trade. Now, in this case, if I was to sell the 590 and if I was to buy the 570, I would be collecting around $60.

My total cost to buy out would be around $2,000. So, if we look at the simulator now, my max loss on this is going to be about $1,938, which is 1.9%. And the max profit is $62, which is not very much uh but it's it's 6% in a couple days.

This by itself would be a stronger way to play it. Now, we can also look at expected move, and I think that is going to give us a a better example of where we might want to play.

So, let's go to the chain here, and let's look at the the straddle price. So, I want to go to the right to at the money, which is going to be that $6.990 level. And we're going to look at $25 for the for the call on this side.

So, it's $25 and then $24 for the put on the on the opposite side. So, we're looking it's about equal. There's about equal pricing. That means we're pricing in about a $50 move.

We're going to times that by 08. Not going to use my calculator. I'm going to use my head in this one. Okay. Okay, so $50 time8 going to be $40. So that's the expected move. The expected move is $40 between now and October 23rd inclusive of the earnings.

So that would mean that we're either going to be trading at but let's do this math together. 690 + 40 is going to be 730 or 690 minus 40 is going to be 650. Did I do that math right?

Let me know if I screwed it up then let me know in the comments. Pretty sure that's right. So, we got a range between 650 7:30. Let's go back to that chart and let's mark those lines on there.

So, we got 730 is going to be right around here. And then that uh 650 is going to be right around here. There is a gap there that has not been filled. You know, there's people talk about this kind of stuff all the time.

They're like, "Oh, there's a gap. It's going to get filled. This gap got filled. There's a gap. There's a gap. This gap, this gap got filled right away. There's a little gap. It got filled.

There's a little gap here which has not been filled. This this gap has not been filled. And then we and then we move up. Interesting thing things to look at. We have two gaps there.

So options. So let's go way more aggressive here. Let's get to this three 630. We're gonna sell the 630 put. Now, I can do this in a couple ways. I'm going to show you in the simulator.

It's a little bit easier because all I have to do is just drag it over. I can just drag this over. Okay. Now, I'm risking $5,500 to make $450. That's almost a 10% return, but I may not have that big of account.

So, here is $350, risking 2,800. Now, I said I was trying to size for a um a $100,000 account. I need to get this max loss to below $2,000. Max profit $279. 84% chance of profit.

This is a much stronger trade. This is the type of trade I'm I would be willing to take. We're $20 outside of the expected move. And from a risk return ratio, um I can make 284 bucks.

Even if I was playing way down here and I could only make likeund what was 117 bucks? No, 60 bucks. This is like if if I'm right on this trade, this trade uh the profits on it are considerable. 280 divided by 60.

How many trades would I have to win to in order to make $280? So, that's one way to look at it. The other thing to do is to say, can we turn this into a butterfly? Is there a chance?

Is it worth it? Because I'm now collecting 280 bucks. What if I was to give back some of that profit and build a tent here? So, let's try to do that. Can I can I just uh add some puts in here?

I'm going to buy a 650 put and then I'm going to uh sell a 655 put. Uh let's reverse those. I'm going to buy the six. There we go. So now I have a expiration P&L of $200. I have a profit 10 down here of $459.

This is considerable considering the the the $200 or the $60 that I was comparing to originally. These are the type of trades I like. I may be able to just squeeze this over just a little bit, too.

And this is where I get to just kind of micromanage. I want to collect enough. 164. This is 129 credit to open. That's still double what that that 590 uh trans um loss is. Look at this max loss.

It's now 1371. So, what can I do now? Because it's 1371. Well, now I get to slide over something else. I get to to maybe slide over the the um and increase the profit tent by being more aggressive with these these puts or less aggressive.

And this is again where I like to set up in Mumu. We talked about that before. Where where do I trade and where do I set up? This collects $148. This trade has a profit tent up to $400.

Break even is 621. Remember, expected move is 650. So, expected move is right here. If we see a down move, we're we're

Just over the edge of that gap. no upside risk. So, Meta could go up and up and up. I could add upside risk easily if I wanted to.

You know, compared to like Meta. We look at Meta. People are trying to buy that and they're like, "Yeah, I'm going to buy Meta and make some money." From a quantitative st standpoint. Um, Meta is at fair value already.