Earlier, Dan previewed the FB earnings event and looked at some hypothetical overlays for existing longs. You can read that here.
As we said earlier, the options market is implying a one day move of a little less than 7%. With the stock at 77, the Jan30th weekly expiration 77 straddle is offered at $5.40, if you bought that you would need a move above 82.40 or below 71.60 to make money, or about 7%.
We’re not involved in FB going into the event but we wanted to look a some directional trades that would express a view one way or the other depending upon your directional inclination:
Hypothetical Trade – FB (77.40) Buy the March 80/90/100 call fly for 1.90
– Buy 1 March 80 call for 2.90
– Sell 2 March 90 calls at .55 (1.10 total)
– Buy 1 March 100 call for .10
Breakevens on March expiration: Lose up to 1.90 below 81.90 with total loss below 80. Gains of up to 8.10 between 81.90 and 98.10 with max gain at 90.
Rationale – This could also be used as a pretty good stock alternative as well. The reward profile up to reasonable levels in the stock at $90 is similar to long stock but its risk profile is much more favorable if the stock goes down as the most one can lose is 1.90.
Hypothetical Trade – FB (77.40) Buy the Feb 75/67.50 put spread for 1.75
– Buy 1 Feb 75 put for 2.30
– Sell 1 Feb 67.5 puts at .55
Breakevens on Feb expiration – Lose up to 1.75 above 73.25 with total loss above 75. Gains of up to 5.75 between 73.25 and 67.50 with max gain at or below 67.50.
Rationale – This risks about 2% of the stock but with a decent reward on a pullback below the recent range.