Facebook Stock Buying Through Put Selling Leaps Options

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Today Facebook Stock set a new 52 week low dipping below $20.00 for the first time since Facebook Stock started trading. Facebook Stock’s symbol is FB and it trades on the NASDAQ. Investors interested in Facebook Stock at these levels may want to consider the various articles by differing authors that predict ranges of anywhere from $13.00 to $24.00 for Facebook Stock in the near future. My own personal view is that Facebook Stock would be more fairly valued at $13.72 which you can read in this Facebook Stock article. You may also find this article on what is Facebook Stock worth, interesting.

Facebook Stock Buying By Other Investors

Meanwhile there are many investors who are busy buying Facebook Stock at present levels. One of these is the legendary investor Cody Willard who thinks Facebook Stock is a steal at these prices. Meanwhile though there are lots of investors who do nothing but sell against Cody Willard’s picks and claim they do quite well. Overall I think it is anyone’s guess until Facebook Stock has a number of years trading to establish clearer support and resistance levels which can be technically analyzed.

Facebook Stock Price Chart

Below is the Facebook Stock price chart since the stock started trading. The $14 price range is still 30% below today’s closing price.

Facebook Stock $14 level

Facebook Stock chart since trading commenced and the $14.00 level in the stock.

Personally I am suspending my Facebook Stock weekly put trades because the stock must first stop falling and set a base of support for the Shark Strategy to work properly again with this stock. The Shark Option Trading Strategy is designed to generate profits but at the same time protect against assignment. Right now the strategy is indicating that the weekly Put Selling should be suspended until Facebook Stock can establish a base.

Catching A Falling Knife in Facebook Stock

Many investors look at a stock such as Facebook as an opportunity to get in on the cheap side. By buying now they believe they are getting a deal on the stock and they might very well be. However I believe all the talking about who is buying what and even Mr. Willard’s purchases should be set aside and investors should consider that catching a falling knife is rarely worthwhile.

Using my early warning tools to spot a collapsing stock, Facebook Stock is in trouble and the early warning tools have advised since last week to stay away from Facebook Stock. Why buy into a stock on the way down when the better plan would be to buy the stock when it turns around and moves back up.

Consider Put Selling Leaps Options\

For those investors who just cannot hold off, why not consider Put Selling Leaps Options instead of buying the stock. There obviously is no rush to be Put Selling against Facebook Stock, but if the goal is to pick up shares around $14 to $15.00, a strategy could be built around the Leaps Options for January 2013.

For example if an investor wanted to end up with 1000 shares of Facebook Stock at an average price of perhaps $15.00, an investor could take his time and sell small quantities of the put options for January 2013.

Today, the $16 January put option could be sold for $1.65 which would put the investor into the stock at $14.35. An investor could sell 3 put contracts today, wait a week and sell another 3 put contracts against at $16 and then a week later 4 put contracts. Or he could take the approach of selling 2 put contracts each week until 10 are sold.

Put Selling Leaps Options

These are the put prices for Facebook Stock leaps options

Put Selling Leaps Options Variations

There are a host of variations an investor could do.

A) He could sell 2 puts at the following strikes: $20, $17, $15, $14, $13 puts, over a period of time as Facebook Stock moves lower. Each time the stock moves lower than the previous sell 2 more put Leaps Options are sold.

For example today the stock reached $19.82. The investor could sell 2 naked puts at $20 for $3.50.

If Facebook Stock fell to $18.00, a new low, the investor would sell 2 naked puts at $17.00.

Then if Facebook Stock fell to $17.00, the investor would sell 2 naked puts at $15.00.

Buy selling puts as the stock falls, the investor is averaging himself into the stock at lower prices, and eventually when the stock bottoms, the investor will be holding 10 naked puts at successively lower put strikes.

B) He could use the same strategy above and be Put Selling 2 put strikes each time the stock reached a new dollar lower ($20, $29, $18, $17 etc) but at the $15.00 put strike price. This means that as the stock falls the investor will earn better put premiums but also protect himself from ending up buying all his puts at one time. If Facebook Stock should turn around and move back up to $20.00 by January, the investor will still have made a large profit on his Put Selling.

C) Start with each move to a lower strike and sell from the closest month out to the Leaps Options in January. This gives the stock time to fall, drive up further out in time put premiums and allow the possibility that each successive month may never be assigned.

For example, today Facebook Stock hit $20.00. The investor will do Put Selling of 2 contracts for September at $18.00 for $1.10 which is 6.1% return. If over the next few weeks the stock falls to $19.00, the investor sells the $17.00 put strike for 2 contracts into October. If Facebook Stock keeps falling and reaches $18.00, the investor sells the November $16 put strike for 2 put contracts. By September options expiry Facebook Stock may have fallen to $18.50, so the September $18 naked put would expire. When Facebook Stock hits $18.00, possibly in September, the investor would sell the December $15.00 put strike. By October Facebook Stock may have reached $17.25 and the October $17 naked puts expire. This is just an example, but basically in simple terms, the investor is selling against the declining stock by selling lower and further out in time. There could easily be times when the Facebook Stock falls lower than the put strike sold, but if it is for only a few cents or a dime, the investor may decide to buy back the put strike and then continue further out in time and at a lower put strike again.

The above are only 3 such variations which can be used by investors who do not want to wait for the stock to bottom out. By Put Selling the Leaps Options an investor increasing the odds of being assigned shares while at the same time earning income along the way in the event that the stock does not fall far enough to be assigned shares. The investor might also find that only some shares are assigned which leaves part of his capital available to continue Put Selling the decline in Facebook Stock.

  • Mark

    Teddi, this is an extremely minor point so excuse me if I appear picky. I’ve been accused of worse.

    But a Jan 2013 option is not really a LEAP anymore though it was when issued. I think of a LEAP as an option whose expiration is more than 9 months away and is farther out than any standard option. For example, Facebook currently has standard options extending to March 2013. Since using the term LEAP implies longer-term options, don’t you think it should be reserved for options whose expiration is later than that of standard options? An option with under 6 months remaining just shouldn’t qualify!

    You might recall before the option symbol changeover, that LEAPS symbols were converted to standard option symbols once the LEAPS’ January expiration fell within the range of standard options.

    Thanks for tolerating this message.