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[Jhoe]

On Friday 6/1, Facebook was trading around $27.50, and I posted that day about a trade I had just opened --a premium sale of July $26 puts at a credit of $1.75 per option ($175/contract). The rationale was that FB would find a floor eventually in the high $25 area, but it was impossible to gauge the size/duration of the bounce it would get--so with IV through the roof and options then pricing in a continuation of the extreme move the stock saw from $45 to $27, instead of getting long shares, why not sell some puts and capitalize on a drop in IV levels and profit more from the end of the steep selloff rather than necessarily a move higher in the stock (although of course that would've worked too)? In any case, today the stock sits at virtually the same level, and I bought back the puts for $1.20 each earlier today, a net of 55 cents per option in profit, or ~30% gross on the position. The recent price action in the name really confirms that a premium sale was the ideal way to execute a bullish to neutral view on FB. Getting long the stock , unless one was lucky enough to perfectly time the "bottom" thus far at $25.50, would barely be profiitable today. Getting long FB calls, even a call spread, would have resulted in a sizable loss during the last 2 weeks as the stocks been range bound and IV has really tailed off. I'm closing this one down today because in my experience, a very tight trading range that persists more than a few days after a steep decline is typically a bearish continuation pattern of some variety, and will precede a breakdown to new lows once the range/lower trend line fails to hold. I could be wrong, but with a sizable gain already banked, why hang around to find out either way? G/l trading to all

Edited by Jhoe, 14 June 2012 - 02:30 PM.