TEI readers know from my previous writings that I do not have an optimistic outlook on Facebook’s near-term future. When I first wrote about my gloomy outlook FB was bouncing around the mid 20’s and shortly thereafter the low 20’—now the stock is at 18.
Obviously it has not been pretty for Facebook since the IPO. Given the magnitude of the decline, it’s difficult at this point to know how much lower it will go, if at all. It’s not unusual to see stocks that have experienced sharp, sustained selloffs suddenly decelerate in their decline and then settle in and remain entrenched at a certain level. While they won’t decline further from that level, they struggle to climb as well.
This may be the case for Facebook now. As such, my outlook on FB shares remains bearish, but less so than it was. Accordingly, I’m now looking at slightly less bearish positions.
One scenario I’m considering now is a simple credit spread to capitalize on FB either remaining entrenched here or moving lower. I’d sell a call and buy another call further out of the money to cover the position.
A more complex position would be a forward ratio. I’d buy one call near the money and sell two calls further out of the money. The far strike can be adjusted down as time decay eats away at the position. You want to stay as delta neutral as possible.
For now, I will continue to keep tabs on FB for signs of continued decline.
If you have access to the Swing the Ax service, the Phase Indicators will help you better time when the downtrend is coming to an end.
Karson Keith’s interest in trading started at a very young age. By age 13, he began trading and managing his father’s money. Today, his passion for trading has attracted a following of like-minded income traders seeking his help in taking their trading to the next level.
Karson specializes in cutting-edge options strategies, volatile markets and small trading accounts. He not only has single-handedly grown several small accounts into large portfolio margin accounts within just a few months, but he has also helped countless people achieve the same results.