Facebook Short Stock Option Position Adjustment And Reverse

In this Facebook trading video, we are going to focus on a number of method strategy decisions, besides the covering of the stock and options trades that were done.

We will be especially be talking about:  (1) the options position adjustment as it went from short, to more neutral, to long (2) closing option legs in options spread that enable the remaining options to be used for protection and/or for price movement that could actually give a bigger profit than the original spread credit.

Our closing position from 11-11 [the yellow square is the closing bar]:

• Facebook stock short -49.15 -47.75
• Short 53 calls 1.45
• +1 x -2 ratio put short – long 49p 1.00 short 47p -1.00
• +1 x -2 ratio call short – short 50.5c .80 long 48c 1.25
  • NOTE:  the 53 calls have been left uncovered
  • +1 x -2 ratio put short – short 45.5p .80 long 48p .90

Price has gone down to 45.73 and the most sensitive short option we have would be the short 47p in the +49p -47p ratio spread:

• +1 49p 1.00 -2 47p 1.00 = 44.00 breakeven point
• 47 – 2 point spread width – 1.00 credit

So we are still fine with this stock options trade combination breakeven point, but regardless the additional shorts in the ratio put spread are covered by short stock.

• +1 48p .90 -2 45p .80 = 42.30 breakeven point
• 45.5 – 2.5 point spread width – .70 credit

What is most interesting to me is that the long 49 put could be closed for around 3.30, with the short stock covering the short 47p – would I be willing to have the 45.5p uncovered with the ratio spread breakeven at 42.30.

• 45.41 is support below the recent lows and it is also a shift line
• 42.43 is next support
• If 46.38 would shift to resistance and there became a failure setup of 45.73-45.41 – like a lower high triple break combination – there would be another Facebook short setup to protect the uncovered put
  • And depending on the actual short stock size still open – the short put may already be covered
  • So, this becomes a case where I would like to use that 49 put and take profit on it –vs- keeping the spread intact
    • Providing there is a setup where (1) the blue line 46.38 is a 5 minute failure break after the 60 min MEx cross (2) the blue line 46.38 breaks and then shifts back to support – again after a 60 min MEx cross
    • You can see on the 11/12 opening bar that there was a higher low and break above 46.38, with MEx crossing – let’s look at the 5 min chart

Facebook Stock Option Trading Charts Review

5 MIN CHART

You can see the setup on the 5 minute chart and I was very close to doing the trade – but I just couldn’t call this a failure break setup at the blue line:

• Yes MEx has crossed – but the chart still hasn’t had the initial reverse
• And MEx crossing isn’t the same as having MEx flow
  • There is no price reject with MEx flowing up after ttM has turned green
  • Also look at the yellow dot, which was the first point I considered closing the put
    • But how could that be done directly into 46.38 resistance?
• So, at this point I ended up doing nothing

5 MIN CHART2

This will be clearer when we look at the 60 min chart again and you see the synch – especially at blue dot2

• Blue Dot1
• Yellow line 47.30 – this is where the double-triple bottom breakout that gave the 47.75 short happened
  • It is now resistance
  • And at the blue dot I was looking to sell some more calls on the swing resumption
  • I could sell 11/22 expiration 48 calls at .86
  • But even though the 60min was still in sell – MEx continued its move up on this price reject
    • But if the 60 minute did reverse and started to move up I should be able to cover the shorts with a buy setup
    • And the 50.5 calls in the ratio call short could be closed for under .10 – which would leave the 48 calls long
      • NOTE:  this is backwards as a calendar spread where you would be the longer dated call and sell the closer expiration
      • But it would still go up against the short 48 calls for the following week
      • This would have been far better if I could have sold 48.5 calls, which I looked to do first – but they were only .60 at the time
• Blue Dot2 46.55 – position adjustment and options spreads legs closed
  • Close 50.5 call short .05
  • Close 49p long 2.65
  • Close 48p long 1.65
  • Close 47.15 trailing addon shorts 46.55
    • This leaves the 47 put short covered by the 49.15 stock short
      • The 45.5 put short in the 48-45.5 ratio short is now uncovered
  • If 46.38 is going to hold as support and the 2 yellow squares are going to be a consolidation triple top breakout that goes back to 47.30
  • Which is actually going to hit as a offset triple top with 47.25 from the breakdown to the lows a little left of where this chart begins
  • Then I want to be less short

60 MIN CHART2

Here is the 60 minute chart and you can see the things that I was referring to on the 5 minute chart

• What MEx was doing on the price reject-retrace from the yellow square
• The synch with blue dot2 and a chart read that 46.38 was trying to shift to support

As it turned out, I couldn’t actually get long until the green dot:

• This was 47.64 the next day 11/13
• Which sucked that there was so much movement first from the blue dot – but I just couldn’t read a better setup
• I will go back to the 5 min chart to discuss the buy

This chart ends at the close of 11/15 – and you can see the question on the chart:

• What is your options trade scenario at the blue circle, based on your chart read at that point?

Facebook Position Adjustment From Short To Neutral To Long

5 MIN CHART3

Here is the 5 minute chart showing what happened after the blue dot – this is the area of the green dot on the 60 min chart:

• I looked hard at going long on the yellow dot – remember that I was looking at that 47.25-47.30 as an offset triple top breakout
  • This just looked like so much of a breakout chase with momentum going extreme – so nothing was done
  • But do consider the delta that was gained after the previous options spreads adjustments
    • Closing the 50.5c short made the 48c long – that became a .45 delta
    • Closing the 49p long made the 47p short – that became a .46 delta
      • That combination is .91 delta and almost a synthetic long that is the same as a stock buy
      • Which was terrific protection before the stock reverse – and then very good upside participation
      • And then the buy became an easy continuation chart read
        • Yellow-blue line shifts to support and rejects into the pmd high
        • The buy is a pmd failure – again a continuation trade
        • With diagonal breakout potential to next resistance at 48.65 – gives 1 point for the first profit target area
        • 11/13 closed at 48.71 – and look at the effect on the options, and especially the decisions to leg out of options in the spreads
          • The short 48c was losing but covered by the 47.64 Facebook buy
          • The 48c long has gone up to 1.20 – and about breakeven to the price paid to complete the ratio call short
            • So, with the short 50.5 call profits – this has become more profitable than the ratio short credit
            • Making it very important to manage this call
            • That 47 put from the ratio short that had gone well in the money and was left covered by the stock short after closing the long 49 put – has now gone to .25 –vs- the 1.00 it was sold for
            • The 45.5 put from the ratio short that was left uncovered – has now gone to .05 bid –vs- the .80 it was sold for

So, we will end here long with any short calls covered by a combination of long stock + long calls – and with a number of short uncovered puts that are profitable and could be closed.

We will pick it up again at the blue circle from the 60 Minute chart.