Facebook Trade Recommendation – Trade of the Week

We entered an Iron Condor position on FaceBook (NASDAQ:FB) on the 23rd October 2013. This strategy is a non-directional outlook for the underlying share price. Using both Call and Put options, we sell the strategy to receive premium, and benefit from Time Decay and declining Implied Volatility. In fact, the strategy has very little to do with directional outlook.

Facebook Trade Recommendation (NASDAQ:FB)Entry Video

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The position we entered was to sell the Nov 62.50/65.00 Call spread, and to sell the Nov 45.00/43.00 Put spread. We received an average of $0.80 per share, with a maximum risk of $1.70 per share.

Earnings for FB was scheduled for the 30th October. Following this, Implied Volatility declined sharply, working in favour of our position. With expiration of the November option contracts on the 15th November, and as the value of the position declined to a mere $0.10 per share with more than a week and a half before expiration, we decided to take our profit and run.

The FB Iron Condor was closed on the 6th November for a gross $0.70 per share return, or 41.18% on maximum Risk. This occurred without a directional movement in the underlying stock price, but with a strong decline in Implied Volatility following the earnings announcement, and with Time Decay.

Since 1998, Matthew has been involved in the Financial Services industry providing stock, option and CFD advisory services, trading advice, funds management and education services. Matt is an Authorised Representative of Halifax Investment Services, providing analysis and recommendations for trading Covered Calls in the US markets and using Exchange Traded Funds (ETFs) ...
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