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The Play on Gold, and the Case for Facebook

The world’s favorite precious metal, and the hottest social network have more in common than you might think. They are both headed lower, at least if you believe last Friday’s "Options Action."

First we traded gold. Oppenheimer’s Carter Worth – who called a top for gold on the March 2nd "Options Action"– still thinks bullion is breaking down and made the case to sell into any strength.

CRT Capital’s Mike Khouw got on board with Carter’s call, and put forward a bearish trade on the GLD. Mike suggested buying the July 153-strike put for $3.25. His trade and payout are below.

MIKE’S GLD TRADE

• BUY THE JULY 153-STRIKE PUT FOR $3.25

HOW MIKE’S GLD TRADE MAKES MONEY

• PROFITS BELOW $149.75

• LOSSES ABOVE $149.75

We took a similarly dim view on Facebook. The stock was sold to everyone and there mother. And with few incremental buyers, and a valuation that would make even the pets.com CEO blush, our panel reasoned there exists few reasons to be bullish. But, people still own the stock, and many want their money back. So while we were in no way bullish on the stock, Dan Nathan of Risk Reversal.com did suggest a bullish options strategy that could help investors recoup their cash should Facebook get a pop.

Again long positions only, Dan suggested buying the 30/34 one-by-two call spread for a mere ten cents.

And it looks like the trade caught on – on Monday, the volume for the August 30 calls was at 775, and the volume for the August 34 calls was at 1301, suggesting that people were putting on the 30/34 one-by two trade.

Dan’s trade and payout:

DAN’S FACEBOOK TRADE

• LONG STOCK

• BUY 1 AUG 30-STRIKE CALL FOR $2.10

• SELL 2 AUG 34-STRIKE CALLS FOR TOTAL OF $2.00

HOW DAN’S FACEBOOK TRADE MAKES MONEY

• STOCK CALLED AWAY AT $34.00

• PROFITS CAPPED AT $34.00

• PROFITS ABOVE WHERE STOCK IS

• LOSSES BELOW WHERE STOCK IS

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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