RDPD富爸穷爸
2022-04-01

Many people said mr market is the best teacher in the investment/trading world. If you are right, you get richly rewarded, if you are wrong you get a slap and a wake up call. 

What I had learnt from Q1 2022 : My win and my lost - FB diagonal spread $Meta Platforms, Inc.(FB)$

After the market dips back in Sep-Oct 2021, I took a position in FB via option using diagonal spread strategy sometimes in mid Oct. This is an investment grade option strategy I like to use when S&P is on an uptrend. (It is equivalent to owning 100 shares and selling covered calls. Instead of shares, I used ITM call as substitute). 

You may ask why I use option instead of shares? This boils down to cost. Owning 100 shares of FB will cost me roughly $32K during that time period (FB is at 320 per share) while the DSS costs me $5.5K which is a fraction of 32K. Another advantage of using DSS is my max loss is accounted for, i.e 5.5K. I know I won't lose more than my debit entry and I could sleep well.

To keep it short, I had my long call @ 280 strike (delta around 60-70) with DTE 6 months (Apr 2022) at the point of entry with my short call around $340 strike expiring in a few weeks. The plan is to keep rolling the short call (I use 2-4 weeks DTE for short call) once every few weeks to collect premium until this option expire in Apr 2022. This is a lucrative business as I will get paid for 6 months by rolling the short calls if the share price stay above my long call. It was good until 2 Feb AMC earning release came out worse than expected, FB share price drops from roughly $320 to $240 overnight. My profits turned into loss as my long call $280 strike is way above $240 share price. On 3 Feb when market open, I close my DSS to salvage any value left as it will not have enough time to turnaround given my contract will expire soon.

Lesson learned

1) Choose a shorter DTE to deploy DSS to avoid earning release)

2) Open DSS only after earning release

3) Choose an index or ETF to deploy DSS since they are not affected by earning release 

My 2022 plan going forward is to keep deploying relevant options strategies and continue to find/stay invested in companies with pricing power for the long haul and keep learning from gurus like Warren Buffett, Charlie Munger etc to gain more wisdom from their selfless share 😊

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • CrystalRose
    2022-04-01
    CrystalRose
    It's a great investment method, and I don't have much capital. Can I try this kind of solution? Which stock do you think is suitable?
    • RDPD富爸穷爸: 
      I only deploy it when I see all 3 indexes on an uptrend, now probably is not an appropriate strategy
  • MR_Wu
    2022-04-01
    MR_Wu
    I have also used the diagonal spread strategy.
  • koolgal
    2022-04-03
    koolgal
    Thanks for sharing your options strategy. 👍😊
  • ChristKitto
    2022-04-01
    ChristKitto
    Thank you for sharing. 🙏🙏🙏🙏🙏Some experiences cannot be bought with money, and these lessons are also worth learning.
  • LeilaLynch
    2022-04-01
    LeilaLynch
    Thank you for sharing your investment experience. I have learned a lot from it. I hope I can learn more.
  • Derrickola
    2022-04-02
    Derrickola
    I always like his saying... using other people to earn money hahahah
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