- Facebook (FB) reports after the close (~4:05pm)
- Options are pricing an expected move of about +/-5% ($12) by tomorrow's close. That's a large share of the expected move for the next month which is about +/-8.5%. ($20)
- The trading session following the prior earnings (in April) Facebook closed +5.4% and was up nearly 8% intra-day
- Facebook stock has moved inline or less than the expected move twice during the trading session following earnings and twice beyond the expected move in the past 4 earnings events.
This is the latest expected move chart, via Options AI technology. This Friday's expiration is highlighted:
Ways to Play
Neutral - First let's look at neutral strategies based on the expected move, that isolate the earnings itself (expiring this Friday) via Options AI technology. Highlighted is an Iron Condor:
A closer look, the +220/-222.5/-245/+247.5 Iron Condor establishes a range with its breakevens right at the expected move. The risk reward is not quite 1 to 1. It of course could be adjusted wider but that risk/reward ratio decreases the farther out it is, while probability of that profit increases. Putting the breakevens at the expected move will generally yield a 1 to 1 or slightly worse risk/reward with a probability of profit in the 60s.
Bullish - For those thinking directionally the expected move can be used to help determine strike selection. The bullish expected move in August is about $250 which lines up pretty nicely with the stock's prior intraday highs from earlier in July.
Here's some trades based on a bullish price target to August (monthly) expiration:
Here's a closer look at the 232.5/250 bullish call spread. Note the max gain near the recent intraday highs:
Here's how the Bullish -232.5/215 Credit Put Spread looks in comparison. Not the max loss near recent lows:
Whether one trades a bullish short put spread or a bullish long call spread depends on how bullish they are. The call spread need the stock to go higher, the short put spread just needs the stock to not go lower. The almost mirror risk/reward accounts for the higher probability of the short put spread vs the long call spread.
Bearish - Going the other direction in August, (bearish expected move about $215) we can see these trades, via Options AI technology:
Again, note the almost mirror risk reward of the bearish short call spread and the bearish long put spread. Volatility will come in following the earnings move so that's an additional positive of the short spreads vs the long spreads. The long spreads need the earnings move a lot more than the short spreads can be hurt by it (initially).