How Options Traders Are Playing Facebook Inc (FB) Ahead of Earnings

Call sellers may be looking to cash in on a post-earnings volatility crush for Facebook Inc (FB)

Jul 26, 2016 at 1:27 PM
facebook twitter linkedin

Social media giant Facebook Inc (NASDAQ:FB) is gearing up to report quarterly earnings after the close this Wednesday, July 27, and traders are largely sitting on the sidelines ahead of the event. In fact, stock and options volume on FB are both running on the low end of normal so far today. With the stock down 0.4% at $121.09 to trade just shy of its newly set record peak, a recent preference for calls suggests options traders see new highs ahead -- but some speculators are taking a different strategy to cash in on a potential post-earnings volatility crush.

Over the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than 200,000 FB calls have been bought to open, compared to roughly 97,000 puts. But the weekly 7/29 125-strike call, which has seen one of the greatest increases in open interest over this time frame, has been targeted most heavily by call sellers. With the majority of these weekly 125-strike calls sold to open, FB options traders could be betting that the stock's implied volatility will plummet after earnings. This would allow them to buy to close these calls at a lower price point -- or, if FB should remain below $125 through the end of this week, the calls could be left to expire worthless at Friday's close.

Still, looking at the bigger picture, options traders generally seem to be taking an optimistic approach, with the stock's 10-day ISE/CBOE/PHLX call/put volume ratio seated higher than 82% of the past year's readings, at 2.08. This bullish attitude isn't surprising, considering FB stock has made an upside move in the session subsequent to reporting earnings the past three quarters in a row. As of now, options are pricing in a single-day post-earnings swing of 9.7% -- rather wider than the average one-day move of 5.7% after FB's last eight quarterly reports.

On the charts, Facebook Inc (NASDAQ:FB) has certainly put in an impressive performance of late. The shares have been on a steady uptrend over the past three years, lifted by support from their rising 40-week moving average, and hit an all-time high of $122.20 just last week. And there's no sign FB is turning back yet -- in fact, it looks as though the stock may have found a fresh foothold atop the round $120 level.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!