Closing Out Last Week’s Facebook Trades:
A little over a week ago, I passed on a pre-earnings trade I had made on Facebook in advance of their May 3 after-market announcement. Essentially, I bought calendar spreads (long side 16Jun17 series and short side 05May17 series) at the 150, 152.5 and 155 strikes when FB was trading just under $152.
I was hoping that the stock would barely budge after the announcement. I was lucky. It did just that, falling a bit to close out the week at $150.24, about $1.50 lower than it was when I bought the spreads.
Near the close, I was able to buy back all of the expiring options (puts at the 150 strike, calls at the 152.5 and 155 strikes for $.02 or $.03), and sell every long call for a higher price than I had paid for the original spread.
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Here are the spreads I made today when FB was trading just under $152:
Buy to Open 2 FB 16Jun17 150 puts (FB170616P150)
Sell to Open 2 FB 05 May17 150 puts (FB170505P150) for a debit of $1.49 (buying a calendar) Spread closed for $2.19, gaining $140.
Buy to Open 1 FB 16Jun17 150 calls (FB170616C150)
Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $3.03 (buying a diagonal) Spread closed for $3.75, gaining $72.
Buy to Open 1 FB 16Jun17 155 calls (FB170616C155)
Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $.55 (buying a diagonal) Spread closed for $1.55, gaining $100.
Buy to Open 2 FB 16Jun17 155 calls (FB170616C155)
Sell to Open 2 FB 05 May17 155 calls (FB170505C155) for a debit of $1.59 (buying a diagonal) Spread closed for $1.62, gaining $6.
These spreads cost me a total of $974 plus $12 in commissions at tastyworks’ ultra-low rate of $1.00 per contract. Even better, when I closed out these trades on Friday, I did not incur a commission at all (only paid the $.10 per contract clearing fee).
I made a net profit of $318 on an investment of $986, or 32% on an investment that lasted for 5 days. The Terry's Tips portfolio that trades FB options gained 22% last week, and now has gained 215% for the year (after commissions). The stock has gained 30% in 2017, but our portfolio has done 7 times that number.
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The risk profile graph I published in the last blog assumed that implied volatility (IV) of the June options would fall from 24% to 16%. I was a little too conservative. IV fell to 18%, and the spreads performed a little better than the graph had projected.
While this is certainly a nice gain for the week, it only came about because I was lucky enough for the stock not to fluctuate very much. In the future, I think I might buy more spreads at strikes below the current stock price of FB because the clear pattern around announcement time has been for the company to exceed expectations by a nice margin and the stock falls a small amount on the news.
Happy trading,
Terry
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Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com
You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself? I look forward to having you on board, and to prospering with you.
Terry
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