Covered Calls for Facebook (FB)
Facebook (FB) already reported last week. FB stock currently trades just over $62, and as a momentum stock, it can be quite volatile. However, Facebook seems to be hitting its stride in terms of revenue and earnings, and I think the path of least resistance is up.
Using covered calls is a great way to invest in a volatile growth stock, as it allows you to buy the stock, strip out a little gain over a month or two, and if the stock gets called away, repeat the process. You aren’t holding the stock perpetually in that instance. If FB stock gets called away and it happens to have skyrocketed, you can wait for a pullback before risking more capital.
Right now, I’d sell the March 22 $62.50 call for $3.55. That’s a solid return of almost 6%, or about a 52% annualized return.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.