My Facebook ($FB) naked put was the only option I had left to expire today and it is expiring deep in the money. FB was trading at $217.63 less than a month ago when I sold my one FB August $200 naked put and received $179.38. This amount won’t show as a profit yet since I’ll be assigned 100 shares this weekend. Instead, it’ll just go to reduce my cost paid per share. I still believe FB will recover eventually and will go on to reach new highs again. The question is how long it will take. Instead of sitting by and hoping for an immediate recovery, I opted to sell a covered call today before the shares are assigned.
While FB was trading at $172.71, I sold one FB October $180 call for $4.50 and received $448.43 after paying $1.57 in commission. Technically it won’t be a covered call until I own the shares after today’s close, but I don’t think there is any chance FB will rally above $200 in the next two hours. (I’m writing this around 2:00 pm). My cost per share is down to $193.72 after deducting my initial naked put and this covered call. Ideally, FB will push up into the upper $170s and allow me to roll the strike higher and eventually work this series of trades into a profit. For now, I’m just slowing the bleeding and cutting losses.
I started off this morning with a limit order at the October $185 strike and priced it $0.10 above the bid. When I circled back to my account this afternoon, I saw FB had dropped another dollar and my order wasn’t close to hitting. I debated lowering the strike to as low as $175 to lock in a higher premium before I decided I should leave more upside to the trade.
The October $180 strike gives me a potential gain of $1,183.25 from today’s price if the option is assigned. That’s 6.85% or 38.72% if annualized. Even with that gain from the current price, I’ll still lose money if this covered call is assigned. The $175 strike had a better potential gain if the option isn’t assigned, so I’m taking a little more risk to push for a bigger gain.
I moved away from the $185 strike after my initial limit order wasn’t triggered because I wanted to lock in a higher premium and better annualized gain, assuming FB doesn’t rip higher again. Also, I have a FB October $180 naked put in my other brokerage account and figured I needed to balance the two trades a little.
The combination of my paper losses on FB and GS have cost me roughly $3,600. With a month to go on my GS covered call and only $90 in time value left, I’m considering rolling that covered call out and down, maybe to the October $240 strike. I’m considering the money to be lost on it now and just need to work the position based on where GS is trading now, not where I was assigned the shares.