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Facebook, Inc. (FB) Message Board

  • benzilla999 benzilla999 Aug 23, 2014 2:19 AM Flag

    anatomy of a trade

    ...............long butterflies. If you look at a chart from FB earnings to now, you will see a very very flat stock. Anyone holding straight long positions has been burned. The best trade would be to sell the $75 strike expiring today (actually Saturday but most of us cant trade on Saturday). Pretty risky if you consider there might be a possibility of big rise and you could be assigned when he stock rose above $75.

    The butterfly mitigates this risk. Lets look at a long buterfly. Short 2 75W @ .65. Long a 76W at .32 and long a 74W at 1.18. Net cost is twenty cents plus commish plus lousy fills (options floating with your bids :/) $.25 if you have patience and a good platform and more than 10 contracts.

    If FB ends next week at 75, you have 1 worthless long 76 and two worthless short 75's so your position is worth a buck from the 74 less commish and payment of a nickle to the options arbitrage. That is not a bad play and you will be have to put up margin of $1.00 and the cost of your initial position. That is a nice little chunk of change for your bet. There is bad news and that is your risk is your premium and profitability diminishes as you get further away from the center which is $75.

    Larger spreads cost more and therefore are usually less profitable but smaller spreads are much harder to hit.

    The key is that a stock that is suppose to move like FB is cheaper to initiate than a stock that is not suppose to move. Remember IV

    This week started at 74. and ended very near where it started. The past few weeks have been very flat. Is next week going to be flat? Well lets stay tuned and see. I expect a little more volatility and will be doing a call back spread. :) ---------- credit if it drops big gains if it rises but bad news if it goes between the short and long strikes. :-o

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