Yesterday we previewed Facebook earnings and detailed a stock alternative into the event that defined risk to just 2.30 into the event, targeting 175 on the upside. Here was the trade:
Buy the FB (164.70) July28th 165/175/185 call fly for 2.30
- Buy 1 July28th 165 call for 4.40
- Sell 2 July28th 175 calls at .60 (1.20 total)
- Buy 1 July28th 185 call for .10
This morning, FB stock is higher as the company beat and raised guidance, from CNBC:
Facebook reported a much-higher quarterly profit, driven by surging sales of mobile video ads, as its advertising revenue grew at more than twice the rate of larger rival Google.
The company also said on a conference call to discuss the results that 2017 expenses would rise less than previously forecast — it’s now saying that expenses will go up 40 to 45 percent, instead of 40 to 50 percent.
With the stock now 174 this trade is worth about $7. A triple. It can be worth up to 10 if the stock closes near 175 on Friday and its intrinsic value here is 9 (meaning there’s about 2.00 in intrinsic value yet to be realized). So there’s a choice to be made here for trade management. The trade is long delta below 175 and short delta above. The longer the stock spends around this level the higher the profits will be over the next 2 trading days. But if the bounce fails some of the profits are at risk.
With the stock in uncharted territory I think it makes sense to take the profits now and not risk a reversal back below 172 (where the current mark to market value of the trade breaks even) For those wanting to squeeze a little more out of the trade using 172 on the downside (and 178 on the upside) as a stop makes sense. Any close tomorrow between those points and this trade will be worth more than it is now.
But it’s a nice triple and for those that are happy with that result it can be closed now.
ACTION – FB (174) Sell to close the July28th 165/175/185 call fly at 7.00 for a 4.70 profit