I have shared many successful Facebook Inc (NASDAQ:FB) trade ideas. Most of those were designed as slow trades, yet they’ve yielded fast profits like this this one last month. Today I want to share one that is designed for faster traders.
I won’t spend too much time touting FB stock’s fundamentals. We all know the potential of over a billion users spending hours on a platform. The stock has recently surged, and as long as equity markets hold up, there should be more upside.
Usually I prefer longer-dated premium selling. I do my research and find areas where price is not likely to go, then sell premium and let time do the work for me.
But I always have room in my portfolio for shorter-dated trades. Those are riskier not so much from the statistical chances of success but rather from the time element. When things go wrong in a short term trade it’s harder to fix it. Time can be ruthless to short-dated option trades when price goes against a setup.
Facebook stock is in a multi-legged breakout that has it at all-time highs and up over 20% since January. I will still try to slice out an iron condor to sell for income. These are fast trades and I only do them if I am willing and able to absorb the loss should the price go against me.
FB Stock Trade Idea
The Long Side: Sell the FB Mar 31 $134/$133 credit put spread for 13 cents per contract. This is a bullish trade that has an 85% theoretical chance of success.
To balance the trade, I will do the opposite and sell upside risk against levels I don’t think are attainable before expiration.
Click to Enlarge The Short Side: Sell the FB Mar 31 $143/$144 credit call spread. This is a bearish trade for which I collect 15 cents to open. This side has an 80% chance of success.
Taking both sides would put me in a sold iron condor. Since I can only lose on one side or the other, if FB stock stays between both sold legs this set up would yield 30% on money risked. I essentially strangle the FB range but with finite risk.
Trying to sell all four legs of an iron condor on one order can be difficult to fill. So to open it, I usually sell one side then the other. These two trades can be taken separately depending on the portfolio.
Risk management is key. In this case, I have to manage the odds of success. I stay clear of coin flips, so I will monitor and make sure that the delta doesn’t get out of control.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.