FB 210 put - Why I still have it and trading lessons
Please see my linked chart for the original trade idea.
1) I bought options expiring 1/31 on 1/13, knowing that earnings is on 1/29 after market close. If you buy close to earnings and plan to hold overnight, you have to consider theta and IV, and be ready to adjust your exit plan.
2) Theta cut into my profits because price hovered near yellow resistance line longer than I expected, but IV increase has been raising option prices. The net effect of these two depends on strike price relative to stock price as you get closer to earnings.
3) Buying only a few contracts, or even one, makes it easier to hold the position thru price fluctuations. This is especially true when trading against the larger trend.
4) Be confident in your trade setup and adjust your exit plan as you monitor the chart. On 1/27 I closed on near the open for about a 50% gain. The gray arrows on this chart show I am holding my other put for a second move down.
5) RSI (14-day) is a very reliable indicator and there multiple ways to use it. The 30 min chart looks bad for my put option, however this could also be an overshoot retracement from a strong move down. RSI on 60min has come up to test the 50 line (12:30 candle), so I am willing to hold my put to see if turns back down.
1) I bought options expiring 1/31 on 1/13, knowing that earnings is on 1/29 after market close. If you buy close to earnings and plan to hold overnight, you have to consider theta and IV, and be ready to adjust your exit plan.
2) Theta cut into my profits because price hovered near yellow resistance line longer than I expected, but IV increase has been raising option prices. The net effect of these two depends on strike price relative to stock price as you get closer to earnings.
3) Buying only a few contracts, or even one, makes it easier to hold the position thru price fluctuations. This is especially true when trading against the larger trend.
4) Be confident in your trade setup and adjust your exit plan as you monitor the chart. On 1/27 I closed on near the open for about a 50% gain. The gray arrows on this chart show I am holding my other put for a second move down.
5) RSI (14-day) is a very reliable indicator and there multiple ways to use it. The 30 min chart looks bad for my put option, however this could also be an overshoot retracement from a strong move down. RSI on 60min has come up to test the 50 line (12:30 candle), so I am willing to hold my put to see if turns back down.
Comment:
This is a great lesson in position size. FB made a sharp move higher after the long bearish engulfing candle on the 28th. I only held one contract and so instead of closing it today for a 50% loss, I liked the possibility of a reversal down (based on my daily chart), so I was willing to risk $267 for a drop after earnings.
