Facebook – Deep ITM Call Option Expiring June 18, 2021 – Day 5

It’s the first Friday expiration and it’s been excellent for selling premium – not so good for holding a deep ITM Call.

Long Stock

Had I held 100 shares of long stock, I would have lost $402 (Purchase Price: $323.10 – Closing Price: $319.08 = 4.02 x 100 shares = <$402>)

Loss on 85 Delta Call

I bought the 85 Delta Call for $35.50 and it is currently worth $31.87 or a loss of <$363.20>.

Gain Selling Premium

Here’s where I did pretty good. I originally sold a short call for $1.04. The stock dropped and closed that option for $0.11 then sold another option for $0.76. Then I closed that option and sold an option expiring May 14 for $1.21 that was worth $1.02 at close of business on Friday. This made my profit on the shorts $188.00

If you take the loss of $363.20 on the long option and add the gain of $188,00a that came from selling premium, I netted a loss of <-175.20>. Half of the loss I would have hand holding long stock.

Facebook – Deep ITM Call Option Expiring June 18, 2021 – Day 2

The market gives and the market taketh away. Today, it taketh away.

Janet Yellen started to warn that Monetary and Fiscal Policy cannot both be running flat out for the foreseeable future without overheating the economy. The U.S. didn’t even spend this percentage of GDP throughout World War II, when government expenditures reached the highest point in U.S. history. So the markets, especially the NASDAQ (Down 1.88%) reacted poorly and Facebook only had one way to go, which was down.

Since I’m being very cautious as the market figures out where it’s going next, I didn’t add any additional positions, but I do expect somewhat of a rebound later in the week since many stocks hit the lower edge of this week’s expected move and I expect they to adjust upward. However, it could be that the market could continue correcting for a couple more days, so caution seemed appropriate.

My Long Call Takes Pain to the tune of <$380.70>

Yesterday when I opened my long option position, Facebook was at $323.10 and today closed at $318.36 (Down about 1.46%), so my long CALL option took some pain and lost $380.70.

Closed my Short Call

To offset the loss, I closed my short $330 Call and made $73.00

And re-established it at a lower level

Then I sold a $222.50 CALL for $107. According to ThinkOrSwim, I’m currently down $479.00 in the trade since the $222.50 CALL increased in value since I purchased it.

I can breakeven for the week if the stock closes above $321.85

The good news is that I can break even in the trade if Facebook returns to $321.85 by the end of the week, that’s the nice thing about selling premium against my long position.

Facebook – Deep ITM Call Option Expiring June 18, 2021 – John Wheeler

Facebook – Deep ITM Call Option Expiring June 18, 2021

For my first demonstration trade for this blog, I decided to use a Facebook Call option that’s deep in the money and expiries in 46 days. I first learned this stock replacement strategy in one of Jim Cramer’s books, but Don Kaufman of TheoTrade also uses a similar trade and calls them Duration Trades.

I use it because an 85 Delta Call option tends to function like being long 85 shares of stock and if we’re lucky, and the underlying runs, my 85 Delta Call can be close to a 100 Delta Call and will act like 100 shares of stock before expiration.

Long 85 Delta Call

I purchased the June 18, 2021 290 CALL (85 Delta Call) for $35.50 on 5/3/21 at about 9:30 am EDT with the underlying at $323.10 and Facebook closed at $323.15.

Short 20 Delta Call expiring this week

Before the market closed today I sold the $330 Call (20 Delta) for $1.04. This should cover my daily theta burn on the trade and will supply some extra income.

NEt results

At the end of the day, with Facebook unchanged, I lost $22.00 on the trade. I also hold a net delta of 65 and theta of 36.34, so I’m happy.

Estimated Profit/Loss at Expiration

Right now the options market is anticipating a move of +/-$26.90 in Facebook Stock by June 18th, which is 8.3% up or down.

I anticipate selling the weekly option 7 times between now at June 18 for a theoretical gain of $700.

So if Facebook stock moves up to $349.70 at expiration, theoretically I could make as much as $3,120 on a $3,550 investment.

If Facebook moves down I could lose my entire investment but likely I would lose $2,279.

And if the stock doesn’t move, I would likely lose about $402.

Stay tuned for updates.

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Facebook – Deep ITM Call Option Expiring June 18, 2021 – Day 2 – John Wheeler