Facebook Inc (FB) Call Buyers Bet On Another Earnings Blowout

Facebook Inc (FB) has a stellar earnings history, and bullish options traders are on betting a repeat

Nov 2, 2016 at 11:11 AM
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Facebook Inc (NASDAQ:FB) is set to report third-quarter earnings after the close tonight, and expectations are running sky high. And why not? Facebook has topped consensus estimates in every quarter but one since going public in 2012 -- amid what one analyst said was a "virtually insurmountable competitive advantage." Moreover, FB stock has made a move to the upside in the session subsequent to reporting earnings in each of the past four quarters, averaging a gain of 7.2%. Given the tech stock's impressive feats both on and off the charts, it's little surprise that options traders and analysts are largely in FB's bullish corner.

Getting back to FB's earnings history for a moment, the company has beat FactSet profit estimates by 19%, 24%, and 17% over the past three quarters, respectively, and last quarter, exceeded the average revenue forecast by 7%. Currently, analysts are estimating earnings of 97 cents per share for FB's third quarter on sales of $6.9 billion. As indicated, the stock has a history of making notable post-earnings moves, averaging a single-day post-earnings swing of 5.2% over the last eight quarters. Thjs time around, the options market is pricing in an even wider move of 8.3% for tomorrow's trading.

Taking a closer look at FB's options pits, volume is running slightly above average today, with roughly 89,000 contracts on the tape so far, versus an expected 69,000. Dominating the action is the weekly 11/4 series, which expires at this Friday's close. Most active thus far is the weekly 11/4 133-strike call, where there appears to be some  buy-to-open action happening. Buyers of the call are betting on the shares rallying beyond $133 -- and into record-high territory -- by the week's end.

Call buying has certainly been popular in recent weeks, with 241,861 calls bought to open over the past 10 sessions on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to 121,166 puts. The resulting call/put volume ratio of 2.00 sits higher than 81% of the past year's readings. And speculators continue to target new highs for the stock. Among options with the largest increases in open interest over the past two weeks is the weekly 11/4 135-strike call, with 13,359 contracts added.

Optimism is clear among the brokerage bunch, too. Out of 30 firms providing coverage, 28 call FB a "buy" or better, and not one analyst recommends selling the shares. Moreover, the average 12-month price target of $156.76 sits well into never-before-seen territory.

Facebook Inc (NASDAQ:FB) has been a technical beast over the past three years, steadily charging up the charts, and hitting a record high of $133.50 on Oct. 25. Though the shares are off 0.8% at $128.41 today, they have added almost 23% so far in 2016, and are sitting comfortably atop support at their 10-week moving average, as well as their long-term ally, the 32-week moving average.

FB Weekly Chart Nov 1


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