Facebook Stock Flying on Earnings Blowout (FB)

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Facebook (FB) shareholders rejoice! The holy angel of earnings salvation has swooped in to save the stock from an ugly fate.

Facebook stock has been suffering alongside its fellow momentum darlings. Shares of the social media titan had fallen as much as 19% from their all-time high, just a whisker from bear market territory.

However, the seemingly inevitable entrance to bear country has been delayed — perhaps indefinitely. Last night, Facebook delivered an earnings blowout, smashing analyst expectations by a large margin. FB was expected to report earnings per share of 50 cents. Instead, the company scored earnings per share of 79 cents. Facebook stock galloped higher in after-hours trading and opened 13% higher this morning.

The overnight gains have propelled the stock back near its $110 highs in one fell swoop. Yet another disaster averted was breaching the 200-day moving average. Short of the intra-day hiccup during the August crash, Facebook stock has remained above the pivotal 200-day moving average for the entirety of its bull run. Breaking below the popular average would have added to the technical deterioration in the stock.

facebook-stock-chart

Source: OptionsAnalytix

A Facebook Stock Trade for All to Like

While chasing Facebook stock after a 13% one-day moonshot may be ill-advised, waiting in the wings for a lower risk entry is a much better idea. Given the newfound love for FB, I suspect any dips in the days ahead to be shallow and short-lived. Option traders can structure spreads to profit from such an eventuality.

Sell the March $100/$95 put spread for $1. Consider it a wager that FB stock is able to remain above the century mark for the next six weeks. The max reward is limited to the initial $1. The max risk can be calculated by taking the spread width minus the net credit. Since we’re selling a $5 wide spread for a $1 credit, the max loss comes out to $4. To incur the max loss, the Facebook stock price would have to fall beneath $95.

Those looking to minimize the damage might consider exiting if Facebook stock price descends below $100 between now and expiration.

Final note: If FB drops a bit over the day, you will be able to sell the put spread for an even higher credit.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/01/facebook-stock-flying-earnings-blowout/.

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