META dropped 9% despite an earnings beat, due to a $15.93 billion one-time tax charge mentioned in their earnings call on Oct. 29. This happened even after they beat revenue and EPS estimates. Since then, META has dropped an eye-popping 20% and is finally showing signs of finding a bottom. Moments like these, where a great company with robust earnings loses so much market cap from an extreme knee-jerk reaction, generate amazing trading opportunities. This is the bread and butter for traders like me who bet on Mean Reversion setups. When I analyze a setup like this, I rely on a specific technical toolkit to filter out the emotional noise. For META, I am looking at three key indicators: Directional movement index (DMI) This indicator consists of three components: the DI+ (green line), the DI– (red line), and the ADX (blue line), which measures trend strength. Typically, a trend reversal happens when the two lines begin to change direction. That’s exactly what we’re starting to see on the META chart. MACD (5,13,5) The Moving Average Convergence Divergence (MACD) is a cornerstone of trend-following analysis. While the standard settings are effective, they can sometimes lag in fast-moving markets. To gain a more responsive signal, I utilize a faster MACD setting of (5, 13, 5). Currently, Meta’s MACD line is rapidly closing the gap on its signal line. While a bullish crossover hasn’t yet occurred, a definitive cross—a widely respected buy signal—could materialize within the next few trading sessions if the stock finds its footing here. RSI (relative strength index) The Relative Strength Index (RSI) provides the third confirmation by measuring the speed and change of price movements. Following the earnings report, the RSI on Meta’s chart dipped decisively into “oversold” territory below the 30-mark. The indicator is now attempting to climb back above this critical threshold, a move historically viewed as a sign of seller exhaustion and an early green light for buyers re-entering the market. If you are interested in following an emotionless trading system built on these principles, please check out here where my CNBC readers get a special launch offer. The trade setup : META 630-635 bull call spread For this trade on META, I’m using a bull call spread — a straightforward options strategy that caps risk while still offering solid upside. One of the reasons I like this setup is how efficient it is. You can get exposure for around $250 per spread and scale in easily by adding contracts as the trade unfolds. To put some numbers behind it, using 10 contracts would mean risking about $2,500 to earn $2,500 in profit if META closes at or above $635 by expiration. That is just a couple of dollars higher from where the stock is trading right now. The idea is to structure the spread just around where the stock is trading. If META pulls back further and dips below $630, I’d consider adjusting the strikes down—for example, setting up a $625/$630 spread—to take advantage of a better entry with potentially higher reward. Here is my exact trade setup Buy $630 call, Dec. 12 expiry Sell $635 call, Dec. 12 expiry Contracts: 10 Cost: $2,500 Potential Profit: $2,500 -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: Nishant has a META bull call spread expiring on Dec. 12. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
