Reflecting on my FSLY options trades. What I did right and what I did wrong. What I am going to do next.
FSLY is the symbol for Fastly. It operates a content delivery network (CDN), which is necessary for entities to provide faster and more reliable online content. Their customers can programme on its platform, enabling edge computing and better service of more dynamic content.
I was attracted to FSLY because of edge computing. I am a website owner so I understand the importance of speed. It seems like a good company with the right idea and technology.
I read some news and comments by other investors about it and liked what I read. I did attempt to look at some analysis and reports but I was overwhelmed.
I thought I will just learn as I trade.
FSLY Options: Selling Put Options
I started by selling PUT options on FSLY stock because I thought it is a good way to earn some income. If my option is exercised, I get to purchase the stock at a lower price.
15 April 2021 – Sold a put option with strike price $61 expiring 14 May 2021 at a premium of $265. Strike price $61. Closed at $1,821 on 13 May. Loss: ($1561)
I made a big loss on my first put option on FSLY. $1556. I had listened to a Youtuber about rolling a put option if I am not ready to be assigned.
3 May 2021 – Sold a put option with strike price $60 expiring 7 May 2021 at a premium of $300. Assigned on 7 May 2021. Profit: $297.29
The market was very bullish when I started and I thought it was going to last. I was assigned on my second put option. An “investment” of $6000.
13 May 2021 – Sold a put option expiring 17 Sep 2021 at a premium of $1,940. Strike price $60. Closed on 17 Jun at $880. Profit: $1,054.93
6 Aug 2021 – Sold a put option with strike price $40 expiring 17 Sep 2021 for $300. Closed on 9 August for $188. Profit: $106.81
10 Aug 2021 – Sold a put option expiring 17 Dec 2021 for $515. Strike price $40. Closed on 1 Sep for $300. Profit: $209.83
I collected a total of $1,668.85 – $1,561 = $107.85 from 5 put options.
- Number of shares: 100
- Total cost: $5,892
- Cost per share: $58.92
Selling Covered Call Options
I was assigned 100 shares on 7 May 2021. I didn’t want to purchase more FSLY shares so I have to stop selling puts. I started selling covered call options on the 100 shares I owned.
14 May 2021 – Sold call option with strike price $65 expiring 17 Sep 2021 for $152. Closed on 19 July for $142. Profit: $4.12
19 July 2021 – Sold call option with strike price $57 expiring 20 Aug 2021 for $243. Closed on 26 Jul 2021 for $129. Profit: $108.30
28 July 2021 – Sold call option with strike price $55 expiring 20 Aug 2021 for $215. Closed on 2 Aug 2021 for $117. Profit: $92.91
20 Aug 2021 – Sold call option with strike price $43 expiring 10 Sep 2021 for $137. Strike price $43. Closed on 27 Aug 2021 for 210. Loss: ($78.46)
27 Aug 2021 – Sold call option with strike price $50 expiring 24 Sep 2021 for $90. Expired. Profit: $87.48
12 Nov 2021 – Sold call options with strike price $60 expiring 17 Dec 2021 for $106. Closed on 22 Nov for $13. Profit: $87.48
I really do not know what I am doing with my FSLY calls. Thankfully, I still make a small profit.
The stock price declined significantly since I was assigned. It is a challenge to try to pick appropriate strike prices but it motivated me to learn how to manage the probability of my trades by looking at delta.
I have had to sell calls with strike prices that are way below my purchase price. I need to manage the probabilities of the options carefully.
21 Jan 2022 – Sold call option with strike price $40 expiring 18 Feb 2022 for $55. Expired. Profit: $52.34
23 Feb 2022 – Sold call option with strike price $25 expiring 18 Mar 2022 for $25. Closed on 4 March for $4. Profit: $15.93
7 Mar 2022 – Sold call option with strike price $17.50 expiring 1 Apr for $31. Closed on 22 March for $117. Loss: $91.55
14 Apr 2022 – Sold 1 call option with strike price $30 expiring 20 May for $45. Expired. Profit: $41.47
I sold a total of 11 call options and collected a total profit of $270.02
- Number of shares: 100
- Total cost: $5,892 – $270.02 = 5,622
- Cost per share: $56.22
Learning to Evaluate FSLY
At the beginning of 2022, I attended a course called Options Millionaire Intensive (affiliate link). OMI is a 3-day live / virtual bootcamp. I learnt some interesting investing concepts and strategies. One of them is a checklist for evaluating whether a company is good.
- Operating cashflow (OCF) of a good company should be consistently positive. A bonus if it is growing.
- Net profit margin should be positive. 10% and more to be considered good.
- Interest coverage ratio should be positive. The larger the number the better. Nil is also good. It means the company has no loans.
- The current year Price/Earning ratio (PE) should be lower than the 5-yr PE
- The current year Earning Per Share (EPS) should be higher than the 5-yr EPS
- The Value line should be higher than the current share price. This means that the company shares could be trading at a discount.
Applying the OMI Checklist to FSLY
- FSLY operating cashflow is not good. Negative for 4 years and the negative value seems to be growing. 4-year OCF: (-$31.15 mil) TTM OCF: (-$61.72 mil)
- FSLY’s net margin profit percentage is similar to its operating cashflow situation. 5-year net margin %: (-34.63%) and TTM net margin %: (-62.16%)
- Net income before tax is negative so interest coverage is also negative at (53.45). Not good.
- There is currently no P/E data.
- The TTM Earning per share is (-1.86).
- Since there is no P/E data at the moment for FSLY stock, value line cannot be calculated.
It is clear that FSLY is not a suitable company to invest in at the moment. It did not clear any of the checklist items.
FSLY stock price has dropped from $6,000 to $1,870 as of 20 Feb 2022.
Morningstar’s analysis has been encouraging. They have set FSLY fair value at $25 (as of 14 May 2022). Without P/E and EPS data, this is the best reference at the moment.
I won’t be adding any more FSLY shares and plan to let them go via call options. However, call options premiums are really low. The risk/reward ratio is not ideal.