On Tuesday Facebook (FB) ‘Amazoned’ the online dating industry by announcing it would add a dating feature. The news sent shares of IAC Interatcive (IAC) and Match (MTCH) into a tailspin dropping some 20% each and wiping out $4 billion of market capitalization between the two companies. As we’re about to see, this opens up some interesting options trading possibilities.

This is reminiscent of last summer when Amazon announced its purchase of Whole Foods and shares of supermarket and related retailers such as Kroger, Target, Wal-Mart and Costco declined from 10% to 20% and lost a collective $27 billion of market capitalization in a single day.

That day proved to be a great buying opportunity as shares of Wal-Mart, Target and Costco not only recovered but recently hit new all-time before a recent pullback.  All are still up some 20% in less than a year since the news.

I suspect shares of Match and IAC will have a similar recovery, making this a great options trading opportunity.

I’m going to focus on IAC it has a more diversified portfolio of properties. It owns 35% stake in Match but also controls sites such as Angi’s List, HomeAdvisors and retains stakes in a variety of home shopping channels.

IAC has dropped its 20 dma at $128 level which is also good support setting up an attractive entry point.

The recent steep sell-off and the upcoming earnings which are slated for next Wednesday, May 9th, have caused the implied volatility of the options to increase dramatically.

I want to sell puts to take advantage of these pumped up premiums to create a bullish position.

My approach is to use a ratio spread in which I’m buying one close to the money put and selling twice as many further out of the money puts for a net credit.

Specifically; Buy the May 130 put and sell 2 May 125 puts for a $2.00 net Credit.

Here is risk graph for the position.

If shares are above $130 at the expiration I keep $2.00 of premium I collected.

If shares are below $125 on expiration I will assigned 100 shares with a cost a basis of just $123, or an additional 5.5% below the already discounted price.

This is a great way to make money on the stock either holding its ground or a means for owning shares at a very low-cost basis.

Hi! This is the Option Sensei.  If you’ve enjoyed this article and want to learn more about how I use options trading to take advantage of the stock market, please join me as I use my 25 years of investment experience (including 7 years as an option market maker on the CBOE) to find the most profitable options trades. Click Here To Learn More

 Related: This Investor Predicted the 2008 Crash – Now He Predicts Something Else.