Facebook Call Buyers Bet on a Big Earnings Boom

FB call options are running hot again today

Oct 29, 2019 at 11:32 AM
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It's the thick of earnings season, and FAANG stocks will be in focus this week. In today's trading, Wall Street is reacting to Alphabet's (GOOGL) earnings report. Looking ahead, Apple (AAPL) and Facebook, Inc. (NASDAQ:FB) are scheduled to tell all in the earnings confessional after the market closes tomorrow, Oct. 30, and the options market is pricing in a bigger-than-usual post-earnings swing for FB.

Specifically, Trade-Alert currently puts the implied earnings deviation for Facebook stock at 10%, wider than the 7% next-day move the equity has averaged over the last two years. Five of these past eight earnings reactions have been positive, though just two have been large enough to match or surpass what the options market is expecting for Thursday's trading (a 10.8% pop in January, and a 19% plunge in July 2018).

FB options traders appear to be positioning for a post-earnings breakout. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 1.97 calls for ever put over the last 20 sessions.

This call-skewed trend is continuing in today's trading, too, with roughly 110,000 calls and 40,000 puts on the tape so far -- two times what's typically seen at this point. The weekly 11/1 220-strike call is most active, and it looks like new positions are being purchased here for a volume-weighted average price of $0.30. If this is the case, breakeven for the call buyers at the close this Friday, Nov. 1, is $220.30 (strike plus premium paid).

At last check, FB stock is up 0.07% to trade at $189.54, getting a lift from a price-target hike to $260 from $250 at Credit Suisse. Looking more broadly, the equity has been climbing since taking a sharp bounce off its 200-day moving average at the start of October, and is currently up 6.4% month-to-date. Longer term, the FAANG stock has surged nearly 45% in 2019.

fb stock daily price chart on oct 29


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