META is technically overbought (RSI ~78) due to recent gains, but strong news momentum and AI profitability prospects support a bullish stance managed via options.

Wall Street's optimism about Meta is growing. Its shares made slight gains today after rising by double digits the previous day. Spark, a new artificial intelligence platform, is experiencing increasing demand.

Since its launch, Meta's market capitalization has increased by more than $200 billion .

Looking back, Diana and Tom, to the time when they resolved their legal issues, paid the fine, and settled these cases, the stock price has risen steadily ever since . And now, there is more good news about their app topping the list of most downloaded apps on the Apple App Store, and its excellent performance.

As you know, the second quarter figures were good. This is an engine, do you know what that means? Making a profit. It appears that all these capital expenditures will be used to generate profit, and the market sees a clear path.

Now, there is another issue, which is that much of Muse's earnings potential is not included in their earnings estimates. Therefore, we may see significant jumps in their estimates soon.

Now, as you know, the worrying news is that the stock had already risen significantly before this news came out, and it is in overbought territory according to the Relative Strength Index (RSI).

So, we must be careful, but Tom, looking at everything, Tom and Diane, this arrow carries really good news. The momentum, the news momentum, is amazing. The stock opened higher, then pulled back a little, and now it's rising again.

So, a very good price movement, and very good news for Meta Platforms.

So it seems like a quick leap in gains, but that's exactly what Meta needed given all the money it poured into building this AI infrastructure, trying to compete with Anthropic's Cloud, chatbot GPT, and Alphabet's Gemini.

So, this was a real competitor, and I think this rise is more of a temporary relief, but as Kevin mentioned, I mean this stock is technically overbought based on the sharp upward movement we've seen over the past week or two.

Yes, knowing how high this stock is, you can be optimistic and give yourself a chance to be wrong while still maintaining a profit. What do I mean by that? Well, considering the trajectory of this stock up to its expiration date of October 2nd.

Remember, their earnings won't be announced until the end of the month, on October 28th. So, what you did or looked at in this case, in this paper transaction, was selling a vertical put option out of the profit range.

So, I went for the vertical sell option 710-700 on the Meta Meta platform . It was trading at around 245 credits for this difference. The stock price has risen since then . I think it's trading at a slightly lower price now, perhaps.

Yes, closer to 210 now, but this is a way to trade a high-probability short vertical put option, so that if the price falls back from the overbought levels , you'll still be in a good position with a loss of $40 to $50 off the stock's trading price.

So, Tom, it's just a high-probability short vertical sell option that combines the value of theta. The risk is defined as long as it doesn't end at the middle of the execution price, Tom.

Therefore, you should always be aware of that, but the short vertical selling option is outside the high probability of profit.

Okay . Let's take a look at this. Weekly option dated October 2nd. So, there are only 10 days left until the expiry date. This is an example of a short-term trading strategy in Kevin's deal, which tends to be optimistic.

Let's analyze this. The weekly put option was sold on October 2nd at a price of 710. The probability of it going out of profit is about 74%, which is what we want, i.e., a high probability of success.

Then buy a put option at a price of 700. That is, sell a neutral to bullish vertical put option at a price of $10, we get a profit of approximately $245. The stock is currently trading at a price close to $220.

You may get an extra profit, but that's because the share price has risen slightly. If you make a profit of $245, the breakeven price will drop to $707.55, which is about 6% less than the current share price .

We've already talked about these trade-offs, haven't we ? You risk, as you know, $755 in this type of trading, but you will only earn $245 if you get a balance of $245. But the trade-offs are: you have a 74% probability that the price will exceed the strike price of 710 within the next ten days , and you have a margin of safety of approximately 6% in case of a loss.

Therefore, taking a more negative approach means that the risk is greater than the potential return. But this is certainly one way you can look at it , where you might miss that move, but I'm still bullish on the stock, or at least I think it will settle at these high levels, and maybe pull back, and I'm still able to make a profit based on an assumption you might have if you're neutral or bullish on a stock like Meta.

I've also gone from neutral to bullish, Kevin, in my deal, for example. I turned to the same weekly options series on October 2nd, and given the stock's overbought condition, if we look at the Relative Strength Index (RSI) currently, it is around 78.

Any level above 70 is considered overbought . This does not necessarily mean that the stock will decline, but it is technically overbought due to the sharp upward movement. Remember, we are at the stock's highest level since last October, its highest level in 11 months.

I considered buying an unbalanced buy options butterfly strategy , where I could make a profit. So , I will buy one weekly call option on October 2 at 770, sell two options at 775, and then buy one call option at 800.

I will make a profit of approximately $4.50, which is the price at which the stock was trading previously. It was probably a little higher. No, it's very close. Four, $4.50. What does this mean?

Okay, if the stock price stays below 770, I'll keep the $450 I've accumulated, right? But as you can see here in the risk profile, if this stock continues to rise and reaches the short execution price that I sold at 775, which is about $25 above the current stock price, I will get a small profit margin where I can make about $950 at or near 775.

Now, where do I not want the price to go ? Well, the break-even point in this deal is $78,450. So, I have a large profit margin in this deal, Kevin. What I do n't want to happen is for the stock to continue rising, as I will incur maximum losses above the execution price of 800.

You have maximum losses of approximately $1550 in this trade, Kevin. So, you're taking a risk in this deal too, Keif, but I can make a profit in three out of four scenarios.

Trading the butterfly strategy versus credit. How was this achieved in the event of an upward trend? Okay, so you buy a vertical call option at $5, and you sell a vertical call option at $25, and your goal is for the price to go up a little to around 775 or down, right?

The risk lies above 775, specifically near 780, where the risk begins to appear. Therefore, this is where the risk lies. But if the stock stays at this level, or goes up a little, or goes down, you win and keep the credit.

Now, the optimal scenario is for the price to reach 775, where you hold the credit at 450, while the price of the $5 vertical call option rises to $5. This is the scenario. Be careful when making gains , as this is the source of risk.