Facebook OptionsDate Published: 2017-01-30
Written by Ophir Gottlieb
Earnings had an effect on Facebook Inc (NASDAQ:FB) option trading, but not how you might have first guessed.
Facebook Inc has set the world on fire with its various social media platforms boasting 1.8 billion monthly active users (MAUs) on Facebook Proper, 1.1 billion on WhatsApp, 1.1 billion on Facebook Messenger and 600 million, now, on Instagram.
The user growth as translated into substantial revenue and earnings growth. Here's a chart of both:
That growth has turned the stock into a top performer, with a rise of 117% over the last three-years. There is an option strategy that has worked very well for Facebook Inc (NASDAQ:FB) over the last two years, but it's not about guessing stock direction.
While we often look at selling puts, selling put spreads is also one of many option trading strategies that can be employed to take advantage of a bull market. For Facebook, it has been a winner if done during earnings releases. But, there's a hidden result that we must address. Here's how the strategy did over the last three-years if we only traded during earnings:
While the strategy looks good enough, it actually isn't. Here is the option trading compared to the stock (in gray):
We can't get blinded to results that are out of context. Selling those put Facebook spreads during earnings vastly under-performed the stock and that does us no good. As usual, we always examine option trading strategies when earnings are avoided, and in this case, we get a fascinating result:
Selling put spreads, which is a risk contained option trading technique, does much better when earnings are avoided. We see a staggering 167% rise, which outperformed the stock by 50% and the strategy won 35 times and lost 6, revealing a 85% win-rate.
And just to verify that what we're looking at is some real edge, we can look at selling this put spread over the last 6-months:
That's a 63% return versus a Facebook Inc stock price rise of less than 7%. Even further, the put spread won 6 out of 7 times, yet again, a 85% win-rate.
These are the gems we seek to uncover with the CMLviz.com Option Back-tester. Methodical, relatively risk averse option trading techniques. Here's the best part, we can identify this trading result for Facebook Inc (NASDAQ:FB) in just a few seconds.
WHY THIS MATTERS
We've just seen an explicit demonstration of the fact that there's a lot less 'luck' and a lot more planning in successful option trading than many people know. Here is a quick 4-minute demonstration video that will change your option trading life forever:
Tap here to see the demo movie on YouTube
Thanks for reading, friends.
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