Make 39.1% From a $7 Move in the World's Largest Social Network

Today, I want to share a trade that you can act on immediately from my new service, Trade of the Week.

Trade of the Week was designed to introduce traders to a variety of strategies to take advantage of any market situation… without breaking the bank. It costs only $19 a month, and I teach readers how to implement those strategies in their own portfolios with an actual trade each week. (You can learn more about how Trade of the Week works here.)

The pick I'm going to share with you today can turn a 6.2% move in the world's largest social media company into a 39.1% profit in just two months.

This trade comes from our resident options expert, Jared Levy. The former child prodigy and Wall Street insider uses his unique insight into the markets and proprietary algorithms to recommended profit-amplifying trades on many popular stocks.

For instance, when a stock has a compelling fundamental story, strong catalysts or a killer chart, Jared uses simple call options to turn small moves in the underlying shares into huge percentage returns for his Profit Amplifier subscribers.

I'm especially excited about today's trade, because our first Trade of the Week issue featured a recommendation from Jared that we closed last week for a 38.5% gain in 16 days -- an amazing 827% annualized return. And that was from just a 2% move in the underlying security.

Today's trade in Facebook (NASDAQ: FB) has all the makings of another huge winner.

Facebook: Market Dominator Still Looks Cheap

Facebook is the world's largest social network, boasting 1.5 billion monthly active users worldwide and 1.4 billion mobile active users. Odds are you have a Facebook account -- around 75% of Americans who use the internet are part of the social network.

Its user base is extremely active, with 65% logging in daily and spending at least 20 to 40 minutes a day sifting through news, chatting with friends, posting photos and writing comments and status updates.

Embedded in that stream of information are ads, and Facebook has come a long way in that department. Its algorithms have become increasingly sophisticated, allowing advertisers to target users with products that are relevant to them. And advertisers pay big money for that. In the first quarter, Facebook generated advertising revenue of $5.2 billion, up 57% year over year. That's an average $3.32 per user, up from $2.50 a year earlier.

Analysts are certainly bullish on the social networking giant. Right now, 46 analysts rate the stock a "buy," while only one analyst considers it a "sell." The average target price for shares is $146.31 -- 28% above current prices.

As you can see below, analysts have been raising their earnings estimates for Facebook across all time frames.

Even though shares are trading at a higher price now than they were before the latest earnings report, they look cheaper with the forward price-to-earnings (P/E) ratio falling to about 33.

The recent pullback in shares gives us the perfect setup for a quick gain using call options.

Make 39.1% From a 6.2% Move in Facebook

So, in the latest Trade of the Week issue, I recommended buying (to open) FB Aug 105 Calls for $11.50 or less. That's a call option on Facebook with a strike price of $105 that expires on Aug. 19.

Buying a call option is similar to buying shares of a stock. In both cases, you are going "long" (bullish) on the company. In other words, you expect the share price to rise. But instead of buying the stock outright, you are buying a contract that gives you the right (but not the obligation) to buy the stock at a certain price at a future date. This allows you to leverage the upside of the stock with limited downside risk.

Just look…

Buying one FB Aug 105 Call gives you control of 100 shares for $1,150 -- a fraction of the $11,391 it would cost to buy 100 shares of Facebook outright. And the most we stand to lose on this trade is the $1,150 we paid for the option.

The goal is for FB to rise to $121, which is 6.2% above the current price, by expiration on Aug. 19.

If the stock reaches $121, the call option will have at least $16 of intrinsic value (target price of $121 minus strike price of $105), no matter how much time is left until expiration. If the option hits our price target, we'll generate a 39.1% gain in 58 days, or 246% annualized.

This trade is within range and something you can act on immediately.

If you're interested in receiving more trades like this, plus trading ideas from our other experts, sign up for Trade of the Week for just $19 a month

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