We recently looked at a broken wing butterfly trade on Nvidia. So, let's view another example, this time on Meta Platforms.
This trade has no risk on the upside, some income potential and a healthy profit zone on the downside.
How The Trade With Meta Platforms Stock Would Work
With a regular butterfly option trade, the wings get placed an equal distance from the short strike. But how about a broken wing butterfly? Here, we leave a larger gap on a particular side. This results in less risk on one side and more risk on the opposite side.
Let's take a look at how a broken wing butterfly trade takes flight on Meta Platforms stock:
- Buy 1 Nov. 21-expiration 660-strike put @ 11.90 (based on recent trading)
- Sell 2 Nov. 21 700 puts @ 21.75
- Buy 1 Nov. 21 720 put @ 28.70
Notice that the upper-strike put is 20 points away from the middle put and the lower put is 40 points away. Place this broken wing butterfly trade for a slight credit of around $290, which means there is no risk on the upside. The worst that can happen? All the puts expire worthless, leaving the trader with a $290 return.
On the downside, the maximum loss is $1,710 and the maximum gain is $2,290. If Meta Platforms stock stays above 720, the trade has an income potential of 16.95%.
There is also a large profit zone between 680 and 720. The ideal scenario for the trade is that Meta Platforms stock stays above 700-720 for the next few weeks.
Reward Vs. Risk
The main risk with the trade? A sharp decline in the stock price. The trade starts with delta of 4, so has a very slight bullish bias to start. But that will flip to negative delta closer to expiry if the stock is still above 720. In terms of risk management, I would set a stop loss if META broke below 680 and a profit target of 10-15%.
Investor's Business Daily gives Meta Platforms stock a Composite Rating of 97 out of a best-possible 99, an Earnings Per Share Rating of 96 and a Relative Strength Rating of 78. According to IBD Stock Checkup, Amazon ranks fifth in its group.
Since Meta Platforms is due to report earnings in late-October, this trade actually harbors earnings risk if held through that date.
Meta Platforms is aggressively advancing the smart glasses market with its third-generation lineup, including stylish Ray-Ban and Oakley models. These glasses feature built-in cameras, audio capabilities, and AI integration. These glasses are designed as smartphone companions for now, enabling hands-free tasks like calls, music, and object recognition. Analysts expect strong holiday sales and forecast up to 10 million units sold in 2026. It may position Meta as a front-runner in the emerging AR and AI-driven wearable space.
Always remember that options are risky. 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.
Gavin McMaster is founder and operator of Options Trading IQ, which offers instruction on how to buy and sell options. Follow him on X/Twitter at @OptiontradinIQ.
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