How META put spread yielded over 140% gain in 71 days.

In this brief, we will take a detailed look at the trade plan and payoff profile of recently closed bull put spread on META.

With a bullish expectation based on fundamentals and technicals at the time of entry, we anticipated a net positive outlook on META before the White House announced tariffs on foreign trading partners.

Briefing Date: June 15, 2025

Market Focus: Equities & Options (US)

Time Horizon: 10 weeks

Distribution Time: Post-Market

Overview

Just before the "Liberation Day" tariffs on April 2nd,2025, we sold a bull put spread with strikes at 700/690 deep in the money when $META was trading at a price north of $630 per share.

Unbeknownst to us, the US tariffs will be announced by the White House in the coming days, upon entry into this position. The tariff announcement has sent the markets plummeting to their lowest point, as shown in the chart.

Since we sold a defined risk strategy, meaning the maximum we could lose on this position is limited and falls under our risk threshold, we left the position active.

Trade Construction:

Bull Put Spread construction:

STO (sell to open) META June 20 700 Put

BTO (buy to open) META June 20 690 Put

The 690 put acts as insurance in the event the stock plunges to the downside, and rises in value to offset the loss in value of the 700 Put we sold above. This combination is called a put vertical credit spread, also commonly known as a "Bull Put Spread," since we expect the stock to rise in the following days. The expectation is that $META will close higher than 700 (above our short strike) before expiration on June 20. However, we rarely hold the position until expiration and close it in profit before that.

By selling 700 puts, we receive credit upfront; however, we also incur a debit for opening 690 put insurance. Overall net credit received is $750.

Max Loss is the difference between the strikes - credit received, which is just $250 for a fantastic Reward-to-Risk of 3:1, should we intend to carry it throughout the expiration.

Chart

Meta Daily Chart

Higher time frames will have less noise, and moves are predictable with much better accuracy than on lower time frames, such as 1 hour. Therefore, as usual, we started our study with monthly, weekly, daily, and 4-hour intervals in that order of descent.

With a strong technical basis, we entered the market on a bullish divergence between the price and MACD, with RSI signaling a buy. We rarely deviate from our Max Risk 2% mandate, which has proven to be very helpful in generating consistent results over time. One recent exception was in the $HIMS LEAPS position, where we invested 5% of our capital on a firm conviction that it would rise, which it did later, and we closed in profit. More on this will be discussed in a separate brief.

Although we weren't comfortable with the time of entry, as it had just produced a mere bounce going into its earnings, the following days proved to be challenging as the White House announced the global tariffs. The initial expectation was to hold it over Meta's quarterly earnings, which it delivered with stronger-than-expected results, and the stock has risen since.

As shown in the chart, since Trump announced a 90-day tariff pause, the markets have recovered well, reaching phase 3 and subsequently peaking in phase 4. We held the position into $META earnings, and the results were stronger than market expectations, hence the stock rallied higher.

We eventually closed the position at a resistance zone indicated by the red line formed last year.

By this time, premiums have eroded due to theta (time decay) and also negative delta (options moving towards out-of-the-money from deep-in-the-money). Remember that we sold the deep in-the-money strikes, meaning we entered a mathematically losing position and turned it into a profit as the premiums lost value due to both theta and delta decay. This has worked out very well, and the payoff profile is similar to a bull call spread, which is a net debit spread. The only risk here is of the assignment, which is rare. According to CBOE statistics, only about 7% of options are exercised. We are banking on the assumption that these options won't be assigned shares should the buyer of the 700 strike option exercise them, which is what we sold. Should that occur, we can exercise the long put option bought at 690 strike and deliver the shares to the one who exercised the 700 strike from us. The broker takes care of this automatically, and we don't have to worry about it. However, it's beneficial to act immediately if there's an assignment of shares for the puts sold at $700. In the event of exercise or assignments, we should assume the maximum loss for the position, which was just $250 per contract. This is the benefit of trading defined risk strategies, and why we never have a stop-loss on our positions. Our stop loss was essentially the maximum loss or margin required by the broker to open these option spreads, which was the difference of strikes (minus) the credit received, in this case, $250 per contract.

Overall, we earned a $1,750 profit ✅ on five contracts, with a maximum risk of $ 1,250 ($250 x 5).

This yielded over 140% return for a holding period of just 71 days.

Exit alert sent in our community.

The profit was slightly over our initial cost basis or maximum loss to open the position, and we were happy to close the position in profit after spending over two months, which is typically against our average holding period of two to three weeks for such defined risk strategies.

If you have any questions, please post them in the comments. We look forward to your views or discussion points.