up 12% plus after hours!
A lot of people think the only way to play Facebook is through buying calls/puts or just plain stock. However there are many ways to play Facebook where the odds and probability are in your favor.
Some key numbers first:
52 week range: $17.55-$45
To take advantage of high premiums, because of great uncertainty surrounding the Facebook stock, I sold -8 cash covered puts on FB in one of my Roth IRA accounts.
What is a Cash covered put? and Why $17?
Cash covered put definition:
“The cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock. The goal is to be assigned and acquire the stock below today’s market price. But whether or not the put is assigned, all outcomes are presumably acceptable. The premium income will help the net results in any event.”
||Net Cash Balance||
|10/18/2012 12:37:03||Sold 8 FB Nov 17 2012 17.0 Put @ 0.6
So $463.85 credit after commissions ($60 * 8 – $16.15 commissions).
$463.85 / $13600 cash i need to secure these 8 puts incase they are assigned to me ($1700 * 8) = 3.41% return on your cash in one month!!!
This is a great strategy for all accounts especially IRA and retirement accounts where you cannot use Margin. Since Facebook reported earnings that exceeded analyst expectations and the stock is up I can close the trade early or let it expire worthless in less than 4 weeks. Hope this post was helpful in understanding cash secured puts, please post a reply or comment should you have any questions or comments regarding this strategy!