Rolled FB Naked Put to September

Patience in trading is hard to manage sometimes, but when we have patience, we can often squeeze out an extra few dollars from a trade. That’s what worked for me today. I saw the premium for my July Facebook option was getting close to worthless, I figured I should roll it out and up. (Out means farther out on the calendar and up means at a higher strike.) I knew I wanted to go out further than August, but not beyond 12 weeks out. That left September as an easy decision for the expiration. I considered the $190 strike. It had a potential annualized return of nearly 12% and a cushion of 8.75%, but I opted to push it a little more and went with a higher strike.

While FB was trading at $203.40, I sold one FB September $195 naked put for $6.00 and received $599.32 after paying $0.68 in commission. When I entered the order, the bid/ask was $5.80/5.90. If I was in a rush, I probably would’ve entered an order at $5.85 or maybe $5.90, but I know FB bounces around enough that I could possibly get a better trade if I applied a little patience, so I went with a $6.00 limit order. As luck would have it, FB closed lower on the day and I see the bid/ask at the close was $6.25/6.35, so I could’ve been even more patient.

I didn’t enter the order as a combination because I was debating if I’d just let my July naked put expire worthless next week. After the September trade went through, I wised up and decided closing the July contract for a few dollars was smarter than risking some odd FB price slide in the next week and a half. While FB was trading at $203.35, I bought to close one FB July $180 naked put for $0.07 and paid $8.57 including $1.57 in commission. FB would’ve had to fall 11.51% to make this the better decision on simply a dollars and cents view, but the risk has to be included and I think spending $8.57 is worth removing the risk of getting stuck with an extra 100 shares if another scandal hits the social media company.

The good news on the September put is that I have a 3.12% potential gain, which comes out to 15.43% annualized. I have a 7.03% cushion before a loss. In other words, my break-even price for FB is $189.11 after deducting the premium from my strike. I don’t think FB will fall below $195 based on the trend line of higher lows that started in the first half of May. If it does, $190 seems to be an area of strong potential support based on a trend line that goes back over six months. It used to be resistance and I expect it to become support if FB falls that low again. Also, the 50-day moving average is at $190.57 now and ascending at a fairly steep trajectory.  The 100 and 200-day moving averages are roughly $0.50 above and below $180 and also ascending. I don’t want to see FB fall into a correction (over a 10% decline) again, but I would expect such a price reset to be met with a strong bounce back. For now, FB isn’t giving me any reason to doubt its stability, which doesn’t mean I’m going to ignore any headlines that could change my mind. I’ll be watching closely for sure.