How to Ride Meta's 80% Rally With One Smart Options Trade

• StockStory Top Pick META -0.41% NVDA +1.37% MSFT +1.78%
• ^SPX +0.69% AAPL +0.21%

The Magnificent 7 are arguably the most popular stocks in the market. And with the S&P 500 showing signs of recovery - at least for the meantime - you can expect these seven market leaders to drive the rally.

But here’s the thing: Nvidia, Microsoft, Apple, Amazon, Tesla, Alphabet, and Meta may be at the top, but some of them are more attractive than others, at least in terms of valuations.

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So which one is the “cheapest” right now? And what option strategy would work with it? Let’s find out.

How to Find The Cheapest MAG-7 Stock

First, let’s discuss what metrics can be used to identify cheap stocks.

The most common one is the price-to-earnings (P/E) ratio. P/E is a valuation metric that shows how much investors are willing to pay for $1 of a company’s earnings. It divides the company’s stock price by its trailing (last 12 months) or forward (next 12 months) earnings per share.

The lower the P/E, the better. However, “low” in this context is a highly relative term. To determine whether the resulting value is low, investors usually compare it to the broader sector or market, or, in this case, to a group of companies.

Then, there’s also the price-to-earnings-to-growth ratio (PEG), a metric that measures how expensive a stock’s valuation is compared to its expected earnings growth. To get it, you can divide the P/E by the earnings growth rate.

In essence, PEG tells you if the P/E is cheap, fair, or expensive when you take earnings growth into account. A PEG of less than one is cheap, around 1 to 1.5 is fair, and anything above is expensive.

By combining these two metrics, we can get a clear idea of which current MAG-7 lineup is the cheapest.

So, let’s jump over to the Magnificent 7 Stocks page under the Investing Ideas on Barchart.

Once there, click the Screen button to access the Stock Screener page.

Then add the Price/Earnings Forward and Price/Earnings To Growth filters.

I ran the screen and found that META has the second-lowest PEG and the lowest P/E by a wide margin.

This isn’t surprising because out of all seven, the Mark Zuckerberg-led tech company took a beating after its Q3 financials revealed massive spending on AI now and in the near future.

But, as they say, every cloud has a silver lining, and in this case, it comes with a relatively cheaper valuation for META stock.

Option Strategy: LEAPS Call

Now, usually, an investor would buy the stock that he identified as potentially cheap. However, since we’re talking about options, the next best thing would be to buy an at-the-money Long-Term Equity Anticipation Securities (LEAPS) long call.

LEAPS calls will give you exposure to the stock’s upside without having to commit as much capital, with a longer time horizon that allows your investment thesis more time to crystallize. It will also limit your maximum loss to the premium paid at the start of the trade.

To see available long call trades, simply jump to Meta’s stock profile page and click on Long Call/Put under Options Strategies, then change the expiration date.

I usually opt for LEAPS calls that are dated at least one year, so I’ll use December 18, 2026, right here.

Since Meta is trading at around $613, the closest strike price here is $610. If you believe Meta stock has what it takes to recover within the year, this trade could yield a profit.

According to the screener, you can buy a 610-strike ATM LEAPS call for $111.80 per share or $11,180 total, which expires on December 12, 2026, or 389 days from the time of recording. However, Meta will have to trade above $720.80 for this trade to break even. This highlights one of the biggest disadvantages of ATM LEAPS calls: they’re expensive. 

Still, if you believe that Meta can soar 82% from here, reaching as high as $1,117 within the next year (which is what Wall Street analysts think), this 610-strike call has the potential to become massively profitable for you, especially if it reaches that price while your option still has time. 

Final Thoughts

The Magnificent 7 may all be market leaders, but that doesn’t mean they’re all priced the same. Right now, Meta is the “cheapest” based on its P/E and PEG, and an ATM LEAPS call gives you enough exposure to the potential upside while providing a longer time horizon without outright buying the stock.

But remember, any kind of options trading has its own set of risks, and even long-dated calls can lose value if the stock doesn’t move the way you expect. So, always do your due diligence, set your cut-loss and take-profit levels, and keep an eye on your trade.

On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com