Dear Friend,

Last week, Facebook (FB) announced earnings which were triple the year-earlier results and were 88% higher than analyst expectations, but the stock barely budged from where it was the day before the announcement.  Option players could celebrate, however.  The actual portfolio at Terry’s Tips where we trade FB options gained 45.8% for the week.  We have a lot of happy subscribers who follow this portfolio either on their own or through the Auto-Trade service at thinkorswim.

As good as 45% for a single week might be, you could have done even better if you had followed a trade I told you about 2 ½ months ago.  That is the story I would like to share with you today.

Happy trading.

Terry

Update on Facebook Earnings Announcement Play: 

On May 11, 2016, I told you about two trades I was making in my personal account. You can see the entire blog which explains my thinking on our blog page.  Here they are:

Today, I bought these calendar spreads on FB when the stock was trading just about $120:

Buy To Open 2 FB 16Sep16 120 calls (FB160916C120)

Sell To Open 2 FB 15Jul16 120 calls (FB160715C120) for a debit of $3.26 (buying a calendar)

Buy To Open 2 FB 16Sep16 125 calls (FB160916C125)

Sell To Open 2 FB 15Jul16 125 calls (FB160715C125) for a debit of $3.11 (buying a calendar)

My total investment for these two spreads was $1274 plus $10 commission (at the rate charged to Terry’s Tips subscribers at thinkorswim), for a total of $1284.

When these short calls expired on July 15th, FB was trading at about $122.50, just about the perfect place for me since it was right in the middle of the two strike prices of my spreads.  On that day, I bought back the expiring 120 calls and sold 29Jul16 120 calls and collected $2.50 (selling a calendar spread).  I sold this series because it would expire just after the July 27 earnings announcement.  

I also sold the same calendar spread at the 125 strike price and collected $2.35.  The net effect of these two trades (I collected $960 after commissions) reduced my net investment from $1284 to $324.

After Wednesday’s announcement, FB soared to $130 in after-hours trading, but opened at $127.52, and by late Friday when my short options were about to expire, it had fallen to about $124.  I then closed out my positions by buying back the 29Jul16 calls and selling the 16Sep16 calls I still owned, collecting $2.10 per contract for the 120 strike calls and $3.10 for the 125 strike calls.  After commissions, this worked out to a total of $1030, so I netted a profit of $706 on an original investment of $1284.  Bottom line, I made 55% on my original investment for the 10 weeks I traded FB options.

Over this same time period, investors who owned FB stock made $4 per share on their money.  If they invested $1284 like I did, they could have bought only 10 shares for $120 per share.  Their gains for the 10 weeks would have been $40.  My option trading made 17 times more money than the stock buyers would have made.  Once again, I don’t understand why people would waste their money buying stock when they could spend a little time studying how to trade options, and make a multiple of what they could make by the simple buying of stock.

As with all investments, you should only use money that you can truly afford to lose.  Options are leveraged investments, and unless you totally understand the risks, you can easily and quickly lose more money than you could with the equivalent investment in the purchase of stock.  I think it is worth a little work to educate yourself about the risks (and potential rewards) of trading options.

 
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?

Even better, you can become a Terry’s Tips Insider, and receive all our educational reports and materials absolutely free by opening a new account at the best options broker around - thinkorswim. If you open an account with our link, they will give you 60 days of free trading or up to $600, the same deals they give to everyone who opens an account with them. You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80).  You get $300.65 worth of services without paying us one penny.

I look forward to having you on board, and to prospering with you.

Terry

    

  open thinkorswim account

“I joined your program recently and finally got my account funded at thinkorswim.  I bought (one of the portfolios) on autotrader on Tuesday and even with the market doing unbelievable price changes I am happy to say I am up 13%. I cannot believe it. 

Thanks again ---- I look forward to making good money in the future because I believe the market will be consolidating which will be very good for us.” 

     ~ Michael   

Thank you again for being a part of the Terry's Tips newsletter. If you are interested in signing up as an Insider, visit Terry's Tips today for details.

Sincerely,
Dr. Terry Allen
Terry's Tips