Cheap overnight call on META

I’ve been noting lately that META has been doing a lot better than the market as a whole. Just look at a chart of META versus SPY going back 6 weeks or so (not posted). Now, Meta tends to mostly follow the overall market (SPY and QQQ) so you need to look at everything, but my thinking was that if I could find a nice entry where SPY might be ready for a bounce, then META should bounce too, but perhaps even more. SPY gapped down, while META gapped up. The following are the charts for META and SPY over the last couple of days:

As seen in the first chart, I purchased a call late this afternoon with the goal of holding overnight. Trade details:

META Call 325, 10/13/23, 1.15

Ideally, they gap up tomorrow above Friday’s high of the day.

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META closed near high of the day and SPY was red since late morning and all afternoon, then closed green in the final minutes. With any luck, the positive vibes go through the night and the market gaps up tomorrow morning…

More specifically, SPY rallied at the end right after my entry from 424.55 to 427.35 which is a 0.66% move. At the same time, META rallied from 302.93 to 306.82 which is a 1.28% move. Almost twice as big a move on META as on SPY. My option went from 1.15 to 1.46 which is a profit of about 27% had I closed at the end of the day.

Given the price action in recent history, I have to believe that META has a better chance for positive movement tomorrow. Then again, what actually happens might go completely against me. All we can do is try to trade for the highest probability results, so that we are right more often than we are wrong.


I was just eyeballing this. Actually, SPY closed pennies in the red, but basically unchanged. It was still a positive close.

Hi Derek,

If you dont mind, could you please explain how you decided the entry point…I note that you used SPY’s movement, but not sure which specific metric you used…

For example, did you use the RS reaching 20? If yes, did it not reach that at sometime between 12 and 1 pm itself…Based on your entry marked, it looks like you went in at RSI 30, after it bounced off that?

So, did you just keep following it, waited for it reverse from RSI< 20 to go up, and then after it went even higher to 70 or so, waited for it to drop till 30, and then bounce off from there?

Please note that I dont really know much about TA or even fundamental analysis…just a few basic stuff I am trying to understand here and there…So, appreciate you sharing your thoughts!


Also, which chart platform are you using? and how do you set up your charts, thanks

Hi Charlie,

As for RSI (or Chande) oscillators, I don’t typically care one bit about the numbers. If you look at META, but more so SPY, you can see that the general movement was downward. Stocks move downward when there is more selling than buying. Okay, actually, yes, selling and buying are always exactly equal, but when you move downward there are more shares where the sellers are taking the initiative and accepting the bids made by the buyers. Buyers always want to pay as little as possible so they bid a number that is below the ask that sellers post. But if you really want or need to sell then you don’t post a higher ask that you wish for, you simply accept the lower bid. When you do this, you are the one taking the initiative rather than waiting and you are contributing to lowering the price.

Now, any time the price goes down, you have people who are selling, but at some point the sell-off loses steam and when this happens there is a higher likelihood of a reversal upward. So, if you are looking to catch a bounce, how can you tell when the selling is losing steam? One way is to watch an oscillator like RSI. Look at my chart for SPY. On the far left, the price is going down all morning and into the afternoon, with a few little bounces, but nothing worth trading. At 2pm (14:00) there is a bigger bounce. This was predicted by a divergence in both oscillators. The top one is Chande, and the bottom is RSI. Look at the price chart. It shows a low just after 1pm, then a second lower low at 2pm. Meanwhile, both oscillators showed a low, then a higher low, in other words they started trending up while the price was trending down. This is a divergence (the indicator diverges from the prices) and indicates to us that the selloff is losing steam. 2pm would have been a good time to play the bounce.

Now this is a 5 minute chart. My rule is that on a 5 min chart, any resulting move is only good for about an hour. 1 hour on a 5 min chart is 12 candles. Now, the move could go for a lot longer. It could even be the very start of a multi-day uptrend. But after an hour you need to be aware of a possible reversal. Now charts with longer time frames can go longer. So if you are using 1-hour charts, the the move could last for multiple hours, or on a daily chart, the move is probably going to be for days. When I’m day trading, I generally watch the 5-min chart all day and sometime refer to the longer charts just to get a feel for the grander scheme. I almost never look at the 1-min chart because anything shown on that chart could be so short that it’s not worth it.

Now, advance to today. At the end of the day on both SPY and META we had essentially equal lows with both oscillators trending sharply upward. I play this like a double bottom and bought my META calls. I could have bought the same call on SPY, but I chose META because traders are obviously considering META to be the stronger play so if SPY goes up, META will likely go up more.

Last thing I’ll say: I find oscillators and other indicators to be helpful in trying to assess the likely moves, but they are not perfect. They do not always work. If they always worked, then I would be a billionaire. They only suggest to you that all things being equal (which they rarely are), a reversal is more likely. The best that we can ever do is to find plays that are more likely to work in our favor. The most important part of trading is not your knowledge or your indicators. The most important part is your discipline to limit losses. Traders with high discipline who randomly place trades with zero knowledge generally do much better than traders with low discipline who have expert knowledge of stock markets as well as complete familiarity with all the tools and indicators.

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The charts I posted in this thread are from TradeStation which is a broker. I do not believe that you can buy their platform just to use their charts, you must open a brokerage account with them. I have also posted charts in these forums from Fidelity Active Trader Pro, and from

TradeStation was always my favorite platform way back in the day (20+ years ago) when I was trading full time, all day every day. Back then I closed all my brokerage accounts and pulled out all my money in order to buy a new home for my growing family (I had 5 kids then, 7 today). I completely gave up on active trading, with my only investments in retirement funds.

I recently got back into trading less than a year ago, when my new employer required me to open an account with Fidelity. I told them that I wasn’t sure that I wanted to start their 401K just yet, and they told me it doesn’t matter because they contribute to it whether I do or not, therefore I was required to open an account. This account did everything and Fidelity gave me a monetary incentive to start a brokerage account, so I started trading.

Fidelity was okay, but I always liked TradeStation best so I moved over a few weeks ago.

Generally speaking, I prefer my price charts to be candles, but on Fidelity I preferred OHLC because it was easier to see and less crowded on the smaller charts. Sometimes I will use the 50 and 10 period moving averages, but usually not.

Under the prices, I always have volume, generally colored red and green. Volume is always 2nd in importance to price. A lot of the chart patterns that people like to follow don’t mean a thing without volume confirming that pattern. There are times when volume is supposed to be going up, and times when it is supposed to be going down, and if it’s not doing what it’s supposed to be doing, then this throws a big question mark into the whole pattern.

At the bottom of my charts is always the oscillator. I used to use RSI everywhere, but I discovered that I like “Pretty Good Oscillator” a little better on More recently I noticed the Chande Oscillator on TradeStation which I think I like, but I’m using it along with RSI to get two reads and see which one I prefer.

Other than that, I cannot say that there is anything else that I pay attention to.

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Yes, well the market gapped down this morning then at 10am some bad news hit Tesla (TSLA) which is one of the biggest market cap companies in the S&P and Nasdaq, pulling SPY and QQQ down below the lows of the last 3 days. META however, is holding up pretty well, still around my entry point. I think if the market bounces then META will keep going higher.

Can always count on the market to make it exciting… :confused:

Actually, it appears that I got this wrong. TSLA leveled off as the market kept going down. Now I see there was a labor report of increased job openings which I guess can cause the Fed to worry about increasing wages which increases inflation. That’s what I get for trying to think about fundamental factors.

Either way, I do think that the negative here will prove temporary and the market will regain some strength. And META’s strength over the last couple of days, even after today’s negative, is still pretty good compared to SPY and QQQ. I’m still happy that I picked META over SPY which looks comparably horrible.

Thanks so much Derek! Appreciate you explaining your thought process so clearly!!


Okay, even though we had a negative day, I’m still at least marginally happy. I am still in, and I even doubled down. The following is a combined chart of both META and SPY so I can explain my thinking:

This chart only shows the last couple of days. Now, if you look at longer term charts (6 month or 1 year) you may be able to see that META is poised to eventually challenge their 52-week high. META looks much stronger than the overall market (SPY) in a long term view. So the idea here is that while big-cap techs like META tend to mostly follow the indexes, you would expect that when SPY moves positive, then META would move a bit more positive, and when SPY moves negative you would expect that META would hold stronger, at least a little.

On the current 2-day META chart you can see where I made my entry yesterday. I explained yesterday that I felt that META was making close to a double bottom while the Oscillator was showing a clear uptrend. I also entered because it appeared that SPY was about to bounce and I hoped that META would bounce a little higher than SPY.

Today, the market gapped lower then got potentially bad inflation news. Everything went down pretty sharply, however, META did a bit better because they gapped up yesterday and traded relatively strong so did not go down quite as far. You can see from today’s chart that META found support near 300 which is marked with the horizontal line. I put the same horizontal line on SPY to correspond with the low of the 11:10 bar. You can see by horizontal line that META did better than SPY which kept breaking the line.

I made two vertical lines on the charts. The first was at 11:35 which is where I first noticed that META was finding support while SPY was falling lower. 11:35 is also where the oscillator registered a low point that I though could prove to be the start of a divergence later on. The second vertical line was at 13:50 Which is where I saw an entry point due to a positive divergence. This is where I bought the call for 0.87 which means that my average entry is now 1.01.

Soon after my entry, META bounced but SPY kept going down until it reached its bounce point, but as you can see from the chart, SPY had problems really getting anywhere and eventually the market weakness pulled META down as well. META still maintained it’s support near 300 and everything moved upward in the final minutes.

I’m really not sure what to make of this action and what to expect for tomorrow. Unfortunately for me I have pressing appointments tomorrow which will leave me out of the house most of the day. I’ll keep up with what’s happening on my phone, but maybe I just wont watch. :slight_smile:

Actually, I should have know before today that 300 would be an important support and resistance point. I just noticed this on a longer-term chart:

I am still in. META had a strong day compared to the S&P, up 2.5x SPY’s gain. The following are the same two charts as before, updated to today and 10-min instead of 5-min so that we can see a longer time period.

One thing you can immediately see is that over the 5 day period, META did better and looks much healthier. I’m hoping for a breakout and will likely close after that, but I may still hold for a bigger number too. Also, my META support line around 300 kept holding up. Yes today’s very fist candle is below the line, however, this was because of low volume pre-market trades affecting the open and in less than 2 seconds it was trading above the line, so I don’t count this as broken.

The biggest problem that I have is that it appears like META wants to breakout to the upside, while SPY wants to break to the downside. We’ll just have to see which way wins. Yes, it is possible for both to happen, but highly unlikely.

Everything gapped down this morning, but then we were off to the races. SPY closed up 1.19%, but META gained more than double at 3.49%. After 1pm, it appeared like META and SPY was running out of steam so I got out at 1:17pm. Turns out I was wrong, and had I held on to the end of the day I would have done much better. But you know, when you are sitting on a profit and it feels like things could turn against you, there is no foul in taking profits. The following is the 5-min chart of META next to SPY.

META had a previous high on 9/14 at 312.67 which is the horizontal line on the META chart. As META approached this line, I expected there to be some resistance at that level that may cause it to bounce down. At that same instant on META and SPY there was a clear negative divergence (short diagonal lines on both charts) indicating that the buying surge was running out of steam. I got out as soon as the price hit the line, As you can see there was indeed a pause for a while until after 2:00 right around this line, but eventually it broke upward and closed near the high of the day. META closed a lot stronger than SPY.

I got out at 1.46 with an average price (2 entries) of 1.01 for a profit of 44.5%. I could have profited more, but I’m satisfied. Now in terms of dollars my profit was doubled up because I doubled down near 300. Now, I believe that META is setting up to potentially go higher than they closed, but I had to get out due to the problem of options premium timing. My option was going to expire on 10/13 which is exactly a week from today. I could have held for greater gains next week, but the thing is that when you get this close to expiration, your options lose significant value every day. Shoot, when you are just a week out, you can see it losing value as you watch during the day. The option will be at a price when the stock is at a certain level, then an hour later it gets back to the same level but the option is worth a little less. The difference between trading your option today (10/6) and Monday (10/9) is THREE days which compared to the week I had to expiration is a significant loss. It was almost guaranteed that I was going to close it today and I had enough profit in my position that I was definitely getting out.

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One thing I’ll add about oscillator divergences. On this particular trade, I got out too early, however, it could have dropped at that point. The divergence in this case in META and SPY tells us that a reversal was likely, but not guaranteed. What I have found is that when you have a 2-point divergence (2 tops or bottoms), like I had when I exited, the reversal is more likely, but it is also common that there will be a 3-point divergence. Now, sometimes if I’m unsure, I will wait for a 3-point before I trade and this may be a bit more sure, but when I do this I’ll also often miss the reversal. On these charts, both META and SPY had a 3-point at the top before reversing down. Well, at least SPY. META reversed but it was so short to the end of day that we won’t know until Monday if it will really go down very far. SPY had a more tradable down move of about an hour.

Congrats on booking a profit.

Yes, well after gapping down with the market, META shot straight up well into positive territory. I would have done a lot better had I held despite the 3-day loss in options value that I feared. They are now in a position to challenge the 52-week high set late July, if only SPY and QQQ could follow them into positive territory.