I've sold puts and it is a fixed income strategy. If you sell a 86 strike put for $2.00 and the stock goes the 98.00 for example, you make only $2.00 minus commish at expiration.
Most people will be required to have a level 4 approval to trade puts naked which would allow margin around or less than 20% of the equity of the stock. I am not going to go into all the rules. In this case if we had $20 per share in margin account and the stock rose like previously mentioned you would make roughly $2.00 or 10% and a the person who had the stock made quite a bit better than 10% without as much potential risk.
Now most people will trade cash covered puts which is traded in a cash account not a margin account so there is no leverage. Some brokerages consider cash covered put a level 4 trade and there are a few like Optionsxpress that consider it a level 2 trade. So in this case the person had to put up $86.00 and when the stock goes up as we mentioned, the person makes around 2.5%.
I am not knocking selling puts because I have sold them before and in many cases I consider it safer than an outright stock purchase. You can sell puts to buy a stock at a much lower price (put price-premium received) and if the stock goes up you keep the premium. The thing about selling puts is that it is often not a big % returm. GL
Time spreads are really hard to predict and you cant merely look at an option table and see what will happen. The biggest risk is a steep rise in price which can leave a small premium short option being hedged by a much more expensive long option. I have seen people write calls on very long term options like leaps and getting assigned and the difference in owning stock is that the stock is actually sold but in the option game the LEAP in our example is used to exercise to get stock to cover the assignment of the short option.
Good luck with your trading and I'm just trying to show you some of the pitfalls in trading time spreads. If you study how to do vertical spreads maybe even back spreads for your conviction, I think you will be happy.
I have traded options for many years and I am a technician also and calendar spreads may look innocuous but they are quite a tricky play.
Good luck with your trades
The hard part about being long a back month option and short a front month option is that if your stock rises and you are assigned you will have to use your back month option to cover your front month option. These are termed time or calendar spreads and if you make them into diagonals (different strikes) with the front month being more itm than the back month then many brokerages will consider these naked options. If premiums are low, it sometimes is not worth selling the front month with the risk of losing the more expensive back month option. The though is to try to write and rewrite to make an income off of a back month option but these spreads have theta decay which with the front month option is decaying much faster than the front month if the market is flat. ......So this is desirable.
What happens if the market drops? If you close out your position, then there is less money to close out your short position but on the same token it is much harder to unwind a bad back month option if you need to get out quick. You cant sell it until you are out of your short option position.
If theses options are otm and it rises there can be losses because the short option gains more value than the back month option especially with a difference in implied volatility. Now this is not always the case and most of the time the back month will rise more than the front month. With all this said when you are playing a time spread, it is not a play on the stock going up or down. It is really a very technical play. You play a mixture of theta and vega. Depending on the times or the strikes of the options, the game can change dramatically.
One way that a person may want to play a time spread is to play it into earnings amd sell volatility. The problem with these spreads is that they aren't what they seem. I think that if you want to roll options vertical spreads played at the same expiration give better options at least the options move at the same delta.
It is really hard to trade anything out of money unless it is during a time of speculation like earnings.
Theta just gives a theoretical look at how the instantaneous change in time affects the price of an option. While options look like they are mathematically priced they are human controlled. Everything changes and varies with vega. While our option tool boxes, or CBOE, or trading platforms give us the values for all the greeks, they are pretty worthless when we consider that vega is basically controlled by demand. Implied volatility (vega) is really what the speculators believe the stock will move. The market makers have their hand in on it too. When you buy, the ask goes up plus they get the spread. The same thing happens when you sell.
We as option players try to get the most leverage possible. We have seen the huge gains and we're hooked. After a five or ten bagger, it is hard not to try again but those are far and few between and all the dud plays create more losses than gains, For the most part, the best contracts to get for a stock like FB are ones that are a couple of dollars in the money and a couple of months out. These options are going to move closer to the stock's movements than otm options.
You can even go a step further and negate (at least partially) theta and vega by creating a spread. We call this delta neutral even though it is not truly neutral but it is close. These are plays that are a little safer but the payout is fixed and most don't gain value until they are close to expiration.
DTing, or swing trading options is a tough gig. The market makers have control of the market unless you go fairly deep itm which isn't a bad idea because you have better leverage and you also a contract with a better delta.
With all my digression, I must say that I do not often find the greeks very predictive of the actual movement of a otm short term contracts. They work better for itm contracts.
Good luck with you
Options are next to impossible to price so far out of the money. Most of the premium is demand, however, that doesn't tell the whole story. Have you ever put a bid in for an option contract that is less than a dollar. The ask changes and you don't get a fill. This is because the demand for this option is small and one person can actually change the price of the option by an opening bid.
If you want more meaningful information take a look at the near term option that are near the money especially on near term options. Far OTM near term options are not good indicators.
Certainly does not look like it will hit 100 within a week. See what happens before next earnings. It is probably range bound until the end of summer.
There are 14 trading days left in August and in that time all FB would need to do is continuously go up $3.00 a day to reach $135.00. Yea, it really looks like that's a great possibility.
Everyone was predicting that FB was going to be a $100 a share this year so what is the big deal? Who was laughing? That does not add any credibility to your prediction that FB will be $200.
Realistically it could go anywhere up or down. It is a growth and that is the MO of a growth stock.However, price targets without NUMERICAL reasons are just wishes. You gave no reasons. At this point, if you look at FB as long term growth that you want to hold, that is a good perspective. If you think that FB is momo, then all you have to do is look at the last year and see that it is not so. If you believe that FB will hyper-accelerate its pps for no reason, then I guess you have a right to your opinion. I think FB will continue to grow and I think it is a good long term hold but it likely wont follow the same trajectory of GOOG because FB is close to maturity and when FB ipo'd it came out with 4 times the market cap of GOOG. There is less growth if it is the same as GOOG.
If this goes to $105, It will be late September to October unless of course something unforeseen happens. It is showing a typical pattern and FB looks like it will go into a range for awhile.
Despite any other trading parameters, FB has broken the uptrend and has done it on fairly high volume. As to what the range will be I don't know until it makes the first coil. There is no pressure either way so for a 10 point rise FB will need quite a catalyst.
I trade ranges with options like butterflies. I will trade volatility spreads when needed but I have been observing trading behavior of FB in mostly 2 week swings so I use standard deviations and my own self brewed statistics to trade. I would look for and identify the range and then go from there. You can always look for a factor that would cause the stock to soar but right now I don't see anything and I think it is hard to call an exact point and that is why my swing trades are a week or more. Look for the range.
2.82B x 95.12=268B which is what they list on Yahoo (2.66B actual). I am not really sure where you came up with 2.2B.
How do you get 100 for max pain? Did you know that max pain leaves the most options otm. There are not many put contracts anywhere near a 100. Max pain at 95 is about correct.
There was not much movement in July 2014. FB was flat before earnings in 2013. This earnings is not similar to either. Earnings momentum appears to be good but FB has also taken good gains recently which is different than 2013.. So well see what happens.
For FB to overtake AAPL it will need to increase its revenue over 14 times. While they may let it have a higher PE, it will retract and that is almost fleeting bet in 3 years. Not impossible but not likely..
Why then did it rise on GOOG's earnings? Everything is based on how the market reacts and we cant do anything about it. It is what it is. I am not saying that in jest. It is just hard to place the market in a completely rationale frame so we have to understand how the market reacts and accept it.
There is a few days left but that is a tough bet.
I wish you luck and hope you make some money.!
When there is a lot of rise into earnings, then there is a lot of expectations.
A continuation will all depend on how FB reports. To continue they will need to surprise the market by doing better than the market expects. They will most likely have to handily beat for continuation.
........but alas earnings are always a #$%$ shoot. Anything could happen
The comparison is apples and oranges.
You have to remember that GOOG has been flat since Oct 2013. In the same period FB has almost doubled. Google also has a new CFO who appears as though she is going to cut costs. She is also a Google CFO that appears for the first time to be playing by Wall Streets rules.
FB will go up or down based on its own merit. The comparison between GOOG and FB are not relevent. FB has increased over 16% in the past month. Much of the rise will be built into the expectations of earnings.
Expectations will be quite high. While 120 is not out the question, FB will have to massive beat and show the market that it will contain costs and change its mission to appease Wall Street as opposed to doing what it feels is good for the company. Nothing is completely impossible but FB has done very well in the last couple years just to have the stock drop or stall through earnings. It then climbs between quarters. That is probability and is the way it rolls.
Do your DD and find a reason for what is mentioned in the last paragraph and you will be better able to ascertain the future of the stock. Don't look at GOOG and remember that FB has already enjoyed a good ride the last month.