Facebook (Nasdaq: FB, 80.77) is scheduled to report earnings after Tuesday’s closing bell. FB share are up over 26% year to date, with one market commentator saying, “I’ve never seen a stock want to get to $100 so badly as FB.” There’s also the much talked about “80-120 rule,” which says in a bull market, stocks that hit $80 tend to hit $100, and stocks that make it to $100 tend to rally to $120.
Facebook has traded in a 52-week range of $43.55 – $81.16, having made a new all-time high earlier in the Tuesday morning session. The FB Oct Weekly 81 Straddle is priced around $5.75, implying a move of about 7.3%. Historically, Facebook is strong on earnings – the stock has rallied three of the past four quarters and six of the past eight. FB’s stock has a mean move on earnings of 9.7%, more than implied by this week’s straddle.
While some might be wary of social media stocks following Twitter’s earnings, Facebook is a much stronger performer, and management will avoid the pitfalls that have plagued their younger cousin. User numbers and monetization of mobile are key and Facebook has a history of success in both of these areas.
My Trade:
Sell the 80-79 Put Spread for $0.45
Risk: $55 Per 1 Lot
Reward: $45 Per 1 Lot
Break-even (at expiration): $79.55
= = =
Learn more about OptionHacker here
