Sunday, December 29, 2013

FB Add-on and Roll-up

I have taken on positions in FB twice – even though I figure that it doesn’t meet my primary conditions for Rescue My IRA trades, I made my decision to go with it following Warren Buffet’s advice to "go with what you know."  I have been a member of FB since 2009 or so, and have really enjoyed connecting with old friends there. The ads this year have been particularly insidious – some online publications were even warning people that FB ads on a shared computer might spoil surprise gifts, lol – so I expect continued growth from the company, and at this point I can make an exception on the pick.

I wrote about establishing the first FB position here – http://rescuemyira.blogspot.com/2013/11/another-new-position-fb.html.  That trade was an early foray into using weeklies as well. I made an absolute return of 4.59% on that one, for just a three-day holding period…that works out to an annualized return of over 500%. 

If I apportion a share of Rescue My IRA to investments in “hot stocks” like FB, I believe I can control the risk from them in a way that will allow me to take some gains from them.  If I am careful, I may even be able to make a sustained, better than average return with these kinds of shares, as I did with that first FB trade.

With the current position, I’ve just added another 100 share lot and used that purchase as part of a strategy to roll up from a $50 strike to a $60 strike.   If the January 60 is called away, I will have generated an absolute return of over 17 percent in 90 days, exceeding my goal of an annualized return of 12 percent.

Here’s the analysis of the current FB position.


Started with a 100 share lot, and have since added a second 100 shares.  Current basis is $10,988.49, or $54.94 per share.  I have been selling $50 strikes, but recently rolled up to $52.50, and with this trade have rolled up to $60 strikes; the current contract expires January 2014.  

Total option premiums:  -$92.06 (I had to buy to close a contract that was ITM)
Total dividend payments:  $0.00 – FB doesn’t pay dividends
Total stock gain at $60:  $994.40
Total, absolute gain on the position:  $902.34
Total, absolute return percentage ($902.34/$10,988.49):  17.40%

Annualized total return percentage (held approx 90 days):  70.55%

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