Michael Shulman, Expert Trader, Analyst and Educator

Michael Shulman, Expert Trader, Analyst and Educator

Facebook (FB) is locked in a trading range of $100 – $110.

That’s a great place to initiate short-term, cash-generating buy-write trades and protect your capital at the same time.

Facebook is a terrific company and an expensive stock. When owning and/or trading the stock, it is best to remember that preserving capital comes first.

What do I mean when I say buy-write?

The Weekly CallBuy the shares, then immediately sell an at-the-money or in-the-money call. I prefer this approach to buying puts when trading volatile, expensive stocks that can turn around and bite you before you can say “Villanova in the NCAA men’s final?”

If you bought the stock at $114.50 and sold the April Week Two 114 call, expiring this Friday, you would pick up roughly $1.50 in cash. If you’re called out, you lose $.50 on the shares—a net gain of a buck.

Do that 52 times a year and you have a wonderful annualized return of 45%.

If the stock sells off, you own the shares at $113.00 (your purchase price minus the premium you collected when selling the call); that’s a good place to start selling more calls to generate cash and lower your cost basis at the same time.

Yes, Villanova is in the final—and you can make that much money while creating downside protection for your capital.

Think about it…

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