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Facebook FB option play
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Facebook FB option play

  #1 (permalink)
Trading Apprentice
Waipahu, Hawai
 
Futures Experience: Advanced
Platform: TOS, Ninja
Broker/Data: TT
Favorite Futures: Gold based etf's, occasional stocks
 
Posts: 1 since Jan 2010
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Facebook FB option play

Is there any way to cap my risk to 25,000, and make 100,000 if FB pops $10, to 60, using options?

I make my living day trading, but I have never used options before.

I appreciate any suggestions.

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  #2 (permalink)
Elite Member
Exeter, UK
 
Futures Experience: Intermediate
Platform: CQG QTrader + NT7
Broker/Data: CQG
Favorite Futures: Futures
 
hlatham's Avatar
 
Posts: 53 since Sep 2013
Thanks: 20 given, 22 received

I depends what you mean by capping your risk. By buying call options you have a guaranteed cost because of the premium and commission. Your loss would be limited to this.

It also depends on the expiry date of the contract, for instance looking at the Nasdaq website (unfortunately I don't have live options data) Nov '13 calls would cost $3.05 in premium per contract whereas December calls cost $3.95. Both with a strike of $50 which is roughly the current price. Obviously lower strikes will be more expensive and higher strikes less so. Also those that expire later will be more expensive.

So using the December calls as an example, you could buy 1000 contracts with a strike of $50 at a cost of $3950 + commission. If the price of Facebook goes to $60 you would make $100,000 - $3950 = $96050 - comm.

So the risk is that if the shares stay below $50 you'd lose your premium. If it was between $50 - $50.40 you might recover some of the premium, but you'd need it higher than that to make a profit.

This no doubt counts as financial advice, I'm not sure what liability if any there is that accompanies posting on a public forum as this is the first forum I've done it on so please make sure you do your own research before making any financial decisions as, among other things the figures above may differ.

As an aside, I've never really like using options as anything other than as a buy-write strategy, as a hedge for a portfolio or writing puts where I have the capital to take the stock if necessary.

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  #3 (permalink)
 Vendor: www.probabletrades.com 
OC, California, USA
 
Futures Experience: Advanced
Platform: IB/TWS, NinjaTrader, thinkorswim
Favorite Futures: stocks, options, futures, VIX
 
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Posts: 1,859 since Jun 2009
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Buy 500 contracts of this week's 56/60 call spread. Max profit is achieved if it closes at $60 or higher on expiration (this Friday). This spread actually risks $25,000 to make $175,000 so if you just want to make $100K you could buy a closer to the money long strike and increase your chance of achieving some amount of profit with fewer contracts.

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