Is Facebook Inc. (FB) Setting Up for Another Bull Run on Earnings?

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Facebook Inc. (FB) stock is currently trading at $84.25 and is seeing a small bid higher today as shares are trading higher by just over 0.75% on the day. FB stock has been trading in a 52 week range of $54.66-$86.07 and has been relatively strong this year with shares rallying 7.75% year to date. FB is set to report their most recent quarterly earnings after the bell today. It would appear that traders are buying into the release of the report as Fb typically rallies on earnings day.

Over the past 11 quarters FB has rallied on earnings 8 times and on average moves around 9.36% on earnings day. FB stock has also rallied from earnings day to the nearest options expiration 7 of the past 11 quarters. FB is also looking very strong on a chart. The stock is well above the Ichimoku Cloud and well above both of its major moving averages on the cloud. With the options market implying a move of around $4.70 (5.6%) by Friday’s close a move higher would represent a new all-time high for FB.

Using the implied move calculated by the options market a trader can develop an upside target of $88.95 for this Friday. Using that target I can then set up a strategy in the options market.

Possible trade: Buying the FB Apr 24th Weekly 87-89 Call Spreads for $0.55
Risk: $55 per 1 lot
Reward: $145 per 1 lot
Breakeven: $87.55

This trade offers a trader nearly 3-1 reward to risk ratio and a breakeven point well inside the measured move target implied by the options market.

Andrew Keene

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