Don’t Miss This Earnings Opportunity in Facebook Inc!

The pullback in FB stock ahead of next month's earnings offers a significant opportunity

By Joseph Hargett, InvestorPlace Contributor

Earnings season is in full swing again, and it’s time to look for opportunities within the “FAANG” stocks. We’ve already seen Netflix, Inc. (NASDAQ:NFLX) rally on strong subscriber numbers (even if spending put a wrench in the works), and Apple Inc. (NASDAQ:AAPL) and the rest are set to follow in the next two weeks.

FB stock
Source: Shutterstock

Today, we’re taking a look at one of my favorites: Facebook Inc (NASDAQ:FB). The company has historically surprised investors in the earnings confessional, with its previous report eliciting a post-earnings rally in FB’s stock price of nearly 3%.

With FB stock today falling alongside the rest of the market, it could provide an excellent opportunity for bullish investors to turn a profit … especially options traders.

By the numbers, Facebook is expected to report a 17% surge in earnings to $1.28 per share from $1.09 per share in the same quarter last year. Furthermore, revenue is seen rising 40.3% year-over-year to $9.84 billion.

What’s more, expectations among certain Wall Street analysts may be even higher for FB stock. According to, the whisper number for FB’s third-quarter results comes in 12 cents higher at $1.40 per share. With Facebook historically topping the consensus estimate, even the elevated whisper number could be on the low side.

FB Stock
Click to Enlarge 
But Wall Street has a long and storied love affair with FB stock. According to Thomson/First Call, 42 of the 46 analysts following Facebook stock rate the shares a “buy” or better. The 12-month consensus price target, meanwhile, rests at $196.18 and represents a meager premium of only about 11% to Wednesday’s close.

Turning to the options pits, FB stock options traders are also quite bullish on the company’s prospects. Currently, the November put/call open interest ratio comes in at a 0.68, with calls easily outnumbering puts among options heavily affected by Facebook’s quarterly report.

Surprisingly, peak call OI for the series rests at the just-overhead $180 strike (not the $200 strike, as I would have suspected).

Overall, November implieds price in a potential post-earnings move of about a 6% move for FB stock. This places the upper bound at about $185.61 — explaining the lack of November call OI at $200 — while the lower bound lies at $164.39.

Technically, the $165-$170 region should emerge as solid support, although if FB stock falls into this range, it could remain stuck there for quite some time. Meanwhile, short-term resistance lies near $180, but if FB breaks through here, $190 may be the next stopping point.

2 Trades for FB Stock

Call Spread: For those looking to bank on another FB stock rally following earnings, a November $180/$185 bull call spread has considerable potential. At last check, this spread was offered at $1.68, or $168 per pair of contracts. Breakeven lies at $181.68, while a maximum profit of $3.32, or $332 per pair of contracts — a potential 97% return — is possible if FB stock closes at or above $185 when November options expire.

Put Sell: For those traders concerned about broad-market headwinds, an FB put sell may be just the neutral path you are looking for. At last check, the November $160 put was bid at $1.03, or $103 per contract. As long as Facebook stock trades above $160 through expiration, traders pursuing this strategy will keep the $103 premium. However, if FB trades below $160 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $160 per share.

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

Article printed from InvestorPlace Media,

©2018 InvestorPlace Media, LLC