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I am sick and tired of defending my Facebook (NASDAQ:FB) position. I've taken a bunch of heat from all sorts of folks. Younger "traders" think I am nuts, older "investors" agree with me but still feel the need to get involved, and other folks are just going to ignore the IPO and wait for substance.

I wrote this article in late January giving my personal opinion of FB and the risks associated with buying the stock at such a high valuation. Having some time to reflect on my opinion, I have decided that I was, and am, absolutely right. Be very careful if you want to buy FB shares when the curtain rises sometime in April.

Ok, since I still insist I am right what strategy could we use to actually make some money on this circus?

Zynga (NASDAQ:ZNGA) call options might be the best way to ride the wave for a short term play in my opinion.

The Basics

Zynga : Price: $11.80/share, Dividend Yield: NA, ESS Rating: Neutral

Click to enlarge:

Zynga, Inc. (<a href='http://seekingalpha.com/symbol/znga' title='Zynga'>ZNGA</a>)

Zynga dropped almost 18% Wednesday or $2.55/share. Its earnings came in 'ok' (read this) but not enough to excite buyers to rush in. Apple (NASDAQ:AAPL) had a down day on Wednesday, and the market was lower across the board as well.

Lately Zynga has had a really strong run from around $9.00/share up to about $14.50/share in less than a month. Obviously the run up was not because of earnings anticipation. In my opinion, the run up can be traced directly back to the IPO announcement of FB.

Call it collateral "advantage".

The buzz around Facebook was loud and constant. A drumbeat that could be heard from Goldman Sachs' (NYSE:GS) boardroom, to Morgan Stanley's (NYSE:MS) boardroom, to institutions, hedge funds and mutual funds clamoring for the first cheap shares outside of the "inner circle" millionaires shares who were eagerly waiting for the day they can unload their shares on the public and walk away with millions each.

That isn't a bad thing necessarily, but it is reality, I think. Individual investors will more than likely buy up the shares from day one and we shall see if the price is higher than the initial price, or lower, by the end of the first trading day. That jury is still out.

Zynga is facing a separate jury and is still dealing with its own issues since it went public at $10.00/share and has flat-lined ever since. Until, of course, the Facebook announcement.

For those who want to play the Facebook game, Zynga options could possibly be the best way to go. For the next few months there will be story after story, rumor after rumor, theory after theory about Facebook. Correct, Facebook, not much about Zynga in my opinion, aside from the fact that as of now it comprises about 12% of Facebook revenues/earnings. That was an eye opener at the time, for sure.

What Options Make The Most Sense?

First of all, this is a risk trade, so please check your own risk tolerance and only use money you can afford to lose. That being said, now is NOT the time to buy any of the Zynga options.

I believe we have not seen the last of the dips in Zynga's share price. As a matter of fact, it might go back down to around $10.00/share or a tad less. It probably will happen quickly as the traders that are in charge of this stock are the shorts. Zynga's short interest is about 3% of outstanding shares. This might not be outrageous, however it represents a 30% increase since the price has risen.

It is my opinion that the shorts will cover, the traders will buy the stock back ahead of the Facebook "event", and once the shares are back down to earth, we will see another run up in the Zynga PPS.

The options that I would look at when the share price of Zynga is around $10.00 would be the March 10 calls. I would buy in the money call options and might even straddle that with some out of the money put options to mitigate some risk, the March 11 puts would be attractive to me.

The call options lost half their value Wednesday alone, so by waiting a bit longer, the calls could be a decent buy. At $1.25-1.50/share or $125-$150 per contract a nice profit can be made as the stock fluctuates on the upswing.

The downswings would be covered by the put options which at $1.00-$1.25/share or $100-$125 per contract still gives us a profit on the upside, with downside protection, and a shot at a profit by playing the volatility when the Zynga shares drop once again.

Obviously, this strategy is not for the faint of heart, nor does an average investor want to get involved in a trading scenario like this. Actually, I am not going to implement this strategy if the Zynga share price doesn't co-operate either.

My Opinion

I am not going to buy Facebook shares and I have already completed one round of the Zynga option strategy (the calls only actually) and did nicely. So while I have some history with its success, I will only go for another round if the Zynga share price goes under $10.00. Otherwise you can find me on the bench. For those of you who want to get "in" on the Facebook hype, this might be a way to go.

Oh, one more thing. Don't get greedy. Set your profit goal up front (for options, mine is +100%) and stick to it and close your positions when you reach it. On the downside, figure out what you can lose, and stick with that number (mine is -50%) and close out your positions and lick your wounds.

Disclaimer: Please do your own research and do not buy or sell any security based on opinions expressed here. Your personal investment needs and goals, as well as risk tolerance should always be evaluated beforehand.

Source: Want To Play The Facebook Game? Play Zynga Options