Considering Our Options – $FB Condor

by CC May 2, 2013 9:54 am • Commentary

Facebook’s earnings are out and the stock is trading up about 2.60% (vs the implied move of almost 8.5%), and close to the lower strike of the short call spread portion of our condor. While it is still early in the trade, we have less than 2 trading days to expiration, so let’s look at ways to manage this trade. First, let’s recap the structure:

Trade: FB ($27.50) Sold  May 3rd weekly 26/25  – 28.50/29.50 Iron Condor @ .58

Sold May3rd 26/25 Put Spread at .24

  • Sold 1 May3rd 26 Put at .48
  • Bought 1 May3rd 25 Put for .24

Sold May3rd 28.50/29.50 Call Spread at .34

  • Sold 1 May 28.50 Call at .74
  • Bought 1 May 29.50 for .40

 

With the stock at about 28.18 the structure is worth about .25 or a 33c profit from the price we put it on. The risk to the trade here is that the stock rips higher, through the 28.5 strike and starts eating into that potential profit.

With the structure expiring tomorrow, the options here are either wait it out, cover the call spread portion if the trade, or cover the whole thing. Our breakeven on this trade to the upside is 59.08, but given that we’re up about 30c on the trade right now, the decision to cover or not here gives us a mental breakeven below that 59.08. (We wouldn’t be happy if the stock closed tomorrow at 58.90 even though that would be a winner because that would be a losing move from now)

So what we’ll likely do here is give it some time this morning and see how the stock acts. If this area seems like a difficult area for the stock to get through we’ll continue to give it more time. If the stock appears strong and has the potential for even more gains this afternoon and tomorrow look for us to close the trade, taking our money and running.