from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

support@terrystips.com

Facebook (FB) Play – Diagonal Condor Earnings Strategy

Here is the link to the Seeking Alpha article on FB: https://seekingalpha.com/article/4164510-expect-facebook-earnings-announcement

This article explains our thinking behind the trades we suggested for the upcoming Facebook’s earnings announcement taking place next week.  See full recommendation below. 

Facebook (FB) announces earnings after the close on April 24, 2018.  I have submitted an article to Seeking Alpha outlining the reasons I believe that the stock will trade higher (or at least, not lower) after the announcement compared to its current level. If they accept my article for publication, I will send you the link.  If they don’t accept it in a timely basis, I will send it along to you.

Here are the trades we made this week in accordance with this positive post-announcement outlook using the Diagonal Condor Earnings Strategy that is outlined here in case you missed it earlier.  Note that one of the diagonals is being placed at a slight debit, a small deviation from the strategy.  This should not be a problem because the 1Jun18 options are considerably higher than this debit, and will surely hold up enough so that one of the two spreads is guaranteed to be a serious gainer.

BTO 1 FB 1Jun18 160 put (FB180601P160)
STO 1 FB 27Apr18 165 put (FB180427P165) for a credit of $.25 (buying a diagonal)

BTO 1 FB 1Jun18 177.5 call (FB180601C177.5)
STO 1 FB 27Apr18 172.5 call (FB180427C172.5) for a debit of $.28 (buying a diagonal)

IV of the 27Apr18 options is 47 compared to 31 for the 1Jun18 series (this huge difference is what makes this play so potentially profitable).

Here is the risk profile graph for these spreads assuming that IV for the 1Jun18 series will fall from 31 to 26 after the announcement.  I think there is a fair chance that it will not fall that far, and the results could be even better than what is indicated below:

Facebook Risk Profile Graph April 2018

Facebook Risk Profile Graph April 2018

These spreads require a maintenance requirement of just over $500 per pair of spreads.  One of them is guaranteed to make a gain no matter what the stock price does.

For the past 8 quarters, FB’s post-announcement fluctuation has averaged 3%.  This graph shows that a profit should result if the stock fluctuates less than $5 (about 3%) in either direction.  The potential gains are over 60% for a one-week play if the stock fluctuates less than $5 (and ends up at any price between $165 and $173).

If the stock fluctuates more than $2.50 from the $166.36 price when we placed the spreads, you might want to adjust the strike prices by $2.50 in the same direction.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins

Member Login  |   Programs and Pricing  |  Testimonials  |  About Us  |  Terms and Conditions  |  Accessibility Statement  |  Privacy Policy  |  Site Map

Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

© Copyright 2001-2022 Terry's Tips, Inc. dba Terry's Tips
235 Primrose Lane, Ferrisburgh, VT 05456