Thursday, July 26, 2012

$FB Earnings Double Diagonal Papertrade


Here's an update to this trade after the weekly options expired.

The short put expired ITM by $1.29.
The long put is currently worth $1.60.
The short call expired worthless.
The long call is currently worthless.

So you could close the put side out for a credit of $0.31 right now.  Adding in the initial debit that would net a profit of $0.26 per lot.  Not terrible.

Paper trading this one since it's Facebook's (FB) first public earnings report.  Will update after they report.

Since I don't have a bias either way, I'll be doing one my favorite way to play earnings, a double diagonal similar to this AAPL trade.  This involves selling an OTM front-month (or week) put and call, and buying further OTM back-month put and calls.  For example:

STO FB 27Jul(w) 25 Put for $0.65
BTO FB Aug 12 23 Put for $0.65
STO FB 27Jul(w) 30 Call for $0.60
BTO FB Aug 12 32 Call for $0.65
= net debit of $0.05 & $200 margin requirement per lot

Note that the margin requirement only remains for as long as you hold the short options.  You can see the P&L chart below.  Breakeven is at 24 and 32.

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