I’ve used the phrase “out and up” when referring to rolling an option farther out on the calendar and up to a higher strike, but today I did something I almost never do. I rolled a September put to August and raised the strike, so it’s “in and up”. While FB was trading at $217.63, I bought to close one FB September $195 naked put for $2.26 and at the same time I sold one FB August $200 naked put for $1.80. I paid $47.24 including $1.24 in commissions on the two legs of the trade, $0.62 each. The main reason I did this was to have an option set to expire in August instead of having all of my options falling into September expiration.
When I started looking at my September contract so far out of the money (FB was trading 10.40% above my strike), I realized I could bring the option closer instead of pushing it out into October. While I had a potential gain of 1.17%, 7.15% annualized, left in the September contract, I can earn 0.90% or 13.44% annualized with the new contract. My cushion from a loss dropped from 11.43% to 8.92%. Even as volatile as FB can be, I’m comfortable with a buffer zone of nearly 9%, especially since I know the premiums for covered calls will still be high if I’m assigned the naked put.
My decision was easier to make since I had a good profit on my September put. I sold that put for net $599.32 on July 11 and bought it for net $225.38, which comes out to a realized gain of $373.94. That’s not bad in just two weeks.
FB has had such a solid run higher for months that I could see a little retracement to let the bulls catch their breath. The 10 and 20-day moving averages at $210.25 and 204.57 respectively could provide support on a small price slip. I’m actually counting on the 50-day moving average, at $196.61 and ascending, to provide stronger support. The 50-day moving average is within a few cents of the trend line of higher lows that began almost two and a half months ago. The 50-day moving average will move above this trend line soon, which means my area of expected support will move closer to my cost per share if assigned of $198.21. I would’ve been more aggressive on this trade if FB had been through a correction of any significance in the past few months. I’d rather keep some exposure to it for now but remain at a distance from a loss until I see a better entry point. That’s not to say that a potential annualized gain of more than 13% is something to be upset about while I wait.