Sold FB Naked Call

I own 100 shares of FB that I bought when my naked put was assigned at $200 in August. I sold an October $180 covered call on that options expiration Friday and have seen FB sink further since then. I received $448.43 after commission for the October covered call and could buy it back for $0.66 today. However, I’ve opted to let it run a bit longer since it’s about $12.00 out of the money and only has three and a half weeks to go until it expires.

The risk with a stock like FB is that it could always jump 5% in a day. I don’t expect that in the next few weeks since it still has a hangover from secrecy issues, but I know not to be blind to the risk. That said, I accepted the risk and entered a new order to try to squeeze back some of my losses.

While FB was trading at $166.09, almost $2.00 below where it is this afternoon, I sold one FB November $175 naked call for $4.50 and received $449.33 after paying $0.67 in commission. I might end up closing my October $180 covered call before expiration, but not until I see FB climb above $170 and I’m not even sure I’ll close it then.

FB paused at resistance around $167.55 earlier today. That was first trend line I thought would hold the stock back. This line was the trend line of higher highs that began on September 6 and then hit on September 9 and 21 too. Now I’m curious if this line will become support since trend lines often reverse to support once resistance breaks and vice versa.

The next trend line I drew that could work as a roadblock to further highs is around $170 and declining. This trend line marks the trend of lower highs that began on August 7 and then hit again on August 30. It happens to be where I drew another pseudo-trend line from the point of resistance in April through multiple areas of support in early May, late July and August. This line isn’t pristine, but looks like it’s worth following, especially as the trend line of lower highs mentioned above converges with it later this week.

A close above $172.50 for a couple of days might get me to dump my October $180 covered call. It’s really a race to October expiration and if FB runs higher in a straight line or can meander long enough to allow me to take a full profit on the option.

The ask price for my new short option was $4.30 yesterday afternoon and I thought I was being too coy possibly by aiming $0.20 above that, let alone the lower midpoint between bid and ask prices. Since this new option doesn’t have shares under it to cover, my gain or loss percentages are only based on the price I sold it today and the price where I close it down the road. If it was a normal covered call, I’d make 8.41% if assigned. That’s 57.51% annualized. If it stays flat and expires worthless, I’ll make 17.76% annualized. The high potential returns speak to the risk associated with the trade. 

If I’m forced to sell either of my FB calls for a loss, it will mean that the 100 shares that I own have appreciated nicely. If I’m calculating correctly, I should be able to end up with more money than I have now by expiration either way. That is, unless FB gaps higher and starts trading well above $180 before the third Friday in October.