DailyPlay – Opening Trade (META) – March 5, 2024

META Bearish Opening Trade Signal

Investment Rationale

The recent AI lead rally has many investors whispering the “B” word, “bubble”. But is it time to fade this move, or will you just get run over by the bulls? The parallels between the current rally and the dot com boom are there, but it’s vastly different this time. The companies that are leading with sky-high valuations are generating substantial profits, far from the shell companies of the 90’s. However, that doesn’t mean the market hasn’t started to overpay for these companies. Looking at META, which now trades at 25x forward earnings, is starting to look quite expensive and stretched. 

Technical Analysis

Since META broke out above its $400 all-time highs on its blowout earnings and dividend announcement, META has continued to grind higher, but momentum has slowed considerably and showing signs of exhaustion. This increases the risk of a pullback or at the very least a consolidation as it touches $500. 

META – Weekly

Fundamental Analysis

META currently trades at its upper bound of its historical valuation at 25x forward earnings over the past decade, about 20% more expensive than the beginning of the year. Trading at these multiples, investors need to see substantial earnings growth to recoup their investments, yet analysts are already expecting EPS declines starting next quarter. This presents a fairly substantial risk of nearly 20% downside from a valuation standpoint. 

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 4 Contracts March 28th $495/$480 Put Vertical Spreads @ $5.57 Debit.

Total Risk: This trade has a max risk of $2,228 (4 Contract x $557) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $557 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is extremely overbought and expected to pull back. 

1M/6M Trends: Bullish/Bullish

Relative Strength: 10/10

OptionsPlay Score: 107

Stop Loss: @ $2.78 Credit. (50% loss of the premium)

View META Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View META Trade