Facebook Inc. (FB)’s Options Play Ahead Of Q3 Earnings


Facebook Inc. (NASDAQ:FB) is to announce its earnings this week with analysts remaining confident that it could topple estimates considering Google Inc. (NASDAQ:GOOG) failed to spike with its earnings. Facebook Inc. (NASDAQ:FB) could move by 6% either way on the release of its earnings according to CNBC’s Dan Nathan.

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Google Inc. (NASDAQ:GOOG) reported disappointing earnings last week, a poor performance that Nathan attributes to Facebook’s dominance of the mobile ads segment.

“I think if you are long this is a very widely held stock here I think you want to think about how the options market is thinking about this event. Potentially volatile that’s one and then two they just made or completed this WhatsApp acquisition $20 billion. 178 million shares are going to come on lock next a couple of days after shots report, “said Mr. Nathan.

On holding a long position on Facebook Inc. (NASDAQ:FB) heading into earnings, Nathan advices on putting a Caller on the stock as one of the ways of protecting any gains accrued during the week. Facebook Inc. (NASDAQ:FB) is up by 47% on a year over year basis. Heading into the earnings another play of Facebook would involve selling the December $90 Calls for $120 and using the proceeds to purchase December’s $70 Put’s.

With such a strategy, you would be creating band where you get to lose money on the stock you own while participating on the upside trades of between $80 and $90. Going for this strategy is based on the fact that Facebook Inc. (NASDAQ:FB)’s breakout level as of July and Q2 stood at the $70 mark.

“If you sell upside Calls to buy Puts to protect your stock position then usually you have to buy a Put that is much further out of the money than the Call that you have to sell, “said CNBC’s Michael Khouw.

Advertising continues to generate a greater chunk of Facebook Inc. (NASDAQ:FB)’s total earnings with growth in ad sales expected to be a major determinant of the company’s overall performance, heading into the close of the year.

An increase of revenue on the ads segment will be a clear indication that the company is making gains on its mobile business.

Ken Griffin‘s Citadel Investment Group holds 4.58 million shares of Facebook Inc. (NASDAQ:FB) at the end of Second Quarter.

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