Continued Trade Protection For Facebook Short In The Money Calls

This facebook position trading video will continue the discussion about short in the money call options and how we use our stock and options strategies to protect their risk.  This has been especially important, because the facebook stock has continued to make new highs, making the short calls deeper in the money.

The previous video took us through the 12/20 expiration and focused on a trading position that would be short uncovered calls after expiration, without a protection trade being done.

This video will now go forward with the 12/23 to 12/27 trading week – still short facebook calls that remain in the money and still needing protection.

 Facebook Position Continued Short In The Money Calls Protection

In light of the strong facebook stock trend that just wasn’t giving any retraces that were big enough to spread the short calls into ratio call shorts and an extended breakeven price, having uncovered short calls was not a position that I wanted to have.

So, after the pmd high and gap down, I was looking for that chance to buy long calls for the ratio spread, or get a resumption buy setup for an addon.  A facebook short ratio call spread would extend the breakeven above the recent price highs, or the long stock addon would turn the short calls into covered calls.

You are looking at the facebook 60 minute position chart showing the 12/18 pmd high followed by the gap down open on 12/19

  • Long stock – short ITM calls
  • Sold more calls = 12/27 exp 56c .75
    • Trade was not completely covered by long stock
    • Scenario to cover – addon setup or retrace to turn into ratio call short
    • NOTE:  long stock was held with a renko price envelope reverse [will show the chart in a moment]
      • This was a function of strength of trend with the 60 min position chart
      • And the in the money short call protection against the long stock – not intended protection

Facebook Position Trading Chart And Trades 12/20 To 12/27

  • There was never a facebook stock addon setup or retrace – until end of day where could I buy 54.5c 1.00 against 56c short .75
  • Stock + long call – short calls = covered position
    • And this is critical to our method – selling short options, but having strategies in place for protecting the short option risk

Renko Chart .4 Brick Buy Addon Setup

12-27 Facebook Trading Day And Position Reverse

  • M pattern midline reject with mex flow – but came late in day into close and not done
  • Didn’t have to do after buying long calls
    • Wouldn’t have liked it, but I would have done the trade without the calls
    • This is a function of strength of trend and right side resumption
    • Long call buy – also sold puts to replace shorts that were expiring
      • Sell 1/3 53.5p .95
      • 52.55 breakeven is below support at 53.75 and 52.91

12/26 Facebook Trading Day

  • 60 min extreme crown pattern
  • Renko .4 price envelope reverse
    • +54.5c – 56c ratio short .50 credit = 58 breakeven
    • Sell 1/10 59c 1.00
    • Close long 12/27 54.5c .56 in ratio call short
      • When this trade is done there will be uncovered shorts again
      • 12/27 56 call .75 – 1.51 = .76 loss
      • 12/27 54c .56 – 3.55 = 2.99 profit
      • Doesn’t include short puts profit that will expire worthless
  • Buy 1/3 57p .80 against 1/3 53.5p .95
    • 57-53.5 ratio put short 1.00 credit
    • Extends 52.55 breakeven to 49

12/27 Facebook Trading Day And Position Reverse

  • 60 min facebook position chart reverse
  • Synchs with renko chart .4 brick price envelop reverse continuation – sell facebook stock 57.00
    • Could also use a faster renko chart for timing
    • Renko chart midline reject with mex flow + triple bottom breakout entry
    • 55.89 left side price target1
      • This was the 12/20 pmd high into the retrace that enabled the purchase of the long 12/27 54c

Facebook closed 12/27 at 55.44, so the short 56 calls ended up expiring worthless and all profit.

You can see on this chart how the stock opened 12/30, which was a down open – our open facebook stock and options trading position is now:

  • Short 59c 1.00
  • Short 57p – 53.5p ratio put spread with a 49 breakeven point
  • Short facebook stock at 57.00

The swing low at this point was 54.51, with the next targets at 54.32-53.75-52.91.  I will watch the progression to these targets, along with the related price action.

Consistent with our trading method position strategies:  If there is a confirmed support reject, I will look at buying a call to turn the 59 call short into a ratio, along with selling more puts at a lower strike – this long call-short put combination, would also give protection to the trailing facebook stock short.