Monday, July 27, 2015

FB Analysis

Update 7/8/2015: FB expired without value for maximum profit.

The share price declined by 1.0% over 11 days, or a -3% annual rate. The options produced a 100% yield on debit, for a +3,318% annual rate.

The social networking company Facebook Inc. (FB), headquartered in Menlo Park, California, will publish earnings on Wednesday after the closing bell.
[FB in Wikipedia]


I shall use the AUG1 weekly series of options, which trades for the last time nine days hence, on Aug. 7.


Click on chart to enlarge.
FB at 11:05 a.m. New York time, 30 days hourly bars
Implied volatility stands at 51.7%, which is 3.4 times the VIX, a measure of volatility of the S&P 500 index. FB’s volatility stands at the peak of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

The maximum earnings move is narrower than both the one standard deviation range and the chart range. I've chosen to go with the 1SD range as my standard, since it is the widest of the three.

Iron condor, short the $104 calls and long the $106 calls,
short the $85 puts and long the $83 puts,
sold for a credit and expiring Aug. 8.
Probability of expiring out-of-the-money


The premium is $0.72, which is 36% of the width of the position’s wings.The stock at the time of analysis was priced at $94.39.

The risk/reward ratio is 1.7:1.

The zone of profit in the proposed trade covers a $9.50 move either way. The biggest immediate move after each of the past four earnings announcements was $4.91, and the average was $3.15.

Decision for My Account

I've opened a position in FB as described above.

-- Tim Bovee, Portland, Oregon, July 27, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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