Facebook (FB) – Trade Idea Updates

by CC February 2, 2017 3:49 pm • Trade Updates

Yesterday, we previewed Facebook’s Q4 earnings. Earlier today we gave some thoughts on the results. Now we want to look at the two trade ideas we detailed in yesterday’s preview. Both were bearish, one near term, one longer term. First the near term:

Short Term Bearish – Buy the FB (130.80) Feb 130/125/120 put fly for .90
  • – Buy 1 Feb 130 put for 3.60
  • – Sell 2 Feb 125 puts at 1.70 (3.40 total)
  • – Buy 1 Feb 120 put for .70

With the stock essentially where the trade entry was the put fly is worth about 1.00. It has two more weeks until expiration so the trade management is dependent on what the stock does in the next few days. If it remains above 130 it becomes a timing issue. The break-even on the trade is 129, and decay will start to pick up next week. If the stock looks like it will hold 130 this can be taken off for a small profit anytime. But, if the stock comes under pressure into the close tomorrow or next week and is below 130, then things change as it has a good shot at being a nice winner below 129 so patience would pay off.

The second trade idea is in good shape as a longer term bearish position. Here was the trade idea:

Financing Longer Term Bearish View – Buy the FB (130.80) Feb3rd/ April 125 put calendar for 2.50
  • – Sell 1 Feb 3rd weekly 125 put at 1.15
  • – Buy 1 April 125 put for 3.65

With the stock 131 the short Feb3rd puts are essentially worthless. They did their job. The April 125 puts are worth 3.00 versus the initial cost of 2.50 for the trade. So it has a small profit with the stock unchanged. The management of this trade is now to roll the short Feb3rd put to continue to finance the April puts. The Feb3rd 125 puts can be closed for .03 and rolled to a short February 125 put at .58. That reduces the overall cost of the position to 1.95, creating a Feb/April 125 put calendar.

New Position: FB (131) Feb/April 125 put calendar for 1.95 (currently worth 2.50)