Post-Mortem on the Facebook Fade

Facebook is (FB) is dominating the status updates for many financial journalists this morning. Last night did bring about a sharp reversal in the after-hours, after the stock initially surged to $57 within five minutes of releasing results. There were a few key notes from the conference call which are being blamed for the selloff, including the concern about teens leaving Facebook, which really shouldn't be a shock, and the lack of any mention of a catalyst going forward or even an expansion in ad space. Still, there are other things to consider regarding the fade.

The premiums on Facebook were fairly big. They were big enough that I knew many traders who were looking to sell premium either against the stock or just as a trade. My trade was basically structured in that manner, and I can say I was a bit concerned when I saw Facebook spike higher. I started to calculate what my losses would be as the stock was trading at $56 or $57. One big difference for me was that I sold premium and also limited my losses. I did not have any naked call or put positions, but rather different spread plays, so my loss was limited to the distance between the short position and long position, less any net credit I was paid. However, if I were simply short calls, like some traders surely were, ghosts of earnings past probably came into play....466 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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