Facebook Inc (FB) Options: A Potential Opportunity Before Earnings


Facebook Inc (NASDAQ:FB) is the best performing stock on the Standard & Poor’s 500 Index. Generally, such a fact forces investors to trade options, especially before the announcement of the earnings. However, options trading patterns of the social networker has been “largely quiescent,” says a report from Barrons by Steven M Sears.Facebook Inc (FB) Options: A Potential Opportunity Before Earnings

Facebook strong ahead of earnings

As per the latest comScore data cited by JPMorgan research, time spent on internet is at all-time high for Facebook with 18% for desktops and 20% for mobile devices, in June. Such robust engagement data is quite handy especially before the Wednesday’s second-quarter earnings report.

Based on the comScore data, Doug Anmuth of JP Morgan reiterated its Outperform rating on Facebook with a price target of $80. Previously, five of the 39 analysts covering the stock have raised their expectations from Facebook, which is expected to post earnings of 32 cents a share on revenue of $2.8 billion.

Alluvial Fund May 2021 Performance Update

Alluvial FundAlluvial Fund performance update for the month ended May 2021. Q1 2021 hedge fund letters, conferences and more Dear Partners and Colleagues, Alluvial Fund, LP returned 5.4% in May, compared to 0.2% for the Russell 2000 and 1.0% for the MSCI World Small+MicroCap . . . SORRY! This content is exclusively for paying members. SIGN UP Read More

Backed by such catalysts, investors have pushed the stock too much that it has become the S&P 500?s best-performing stock, gaining almost 170% in last twelve months, according to Quartz.

How to gain from options trade

As per the Goldman Sachs’ volatility database, Facebook’s options are priced expecting the stock to move 11% following the earnings compared to 9% witnessed in the past eight earnings reports. To initiate a position expecting Facebook to gain after earnings, investors can go for December $65 Call available at $9 and sell the December $62.50 put for $3.50, according to Sears.

Options expiring in three-months are priced at the bottom range of the previous year’s implied volatility. “This suggests Facebook’s options are trading without a fear or greed premium, enabling investors to buy calls and puts without paying top dollar,” says Sears. Therefore, if the company’s second-quarter numbers meet or beat the consensus estimate, then the options price should gain.

Initiating such a position will cost $5.50. The long call allows investors to position if the shares go up while the short call allows investors to buy the stock if its fells below $62.50. However, if the stock trades at JPMorgan’s price target of $80 and the put expire, the net gain in such a scenario will be $9.50.

No posts to display