Options investors see good times rolling for Facebook

Thu Oct 23, 2014 6:15pm EDT
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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Facebook Inc FB.O investors used to wild swings in the company's shares following its earnings reports are looking for relative calm on Tuesday, after the social media company posts results.

Facebook, whose shares rose 3 percent to a new year-high of $80.63 on Thursday, is scheduled to report third-quarter results on Oct. 28.

The cost of a Facebook straddle, in which an investor buys an at-the-money put option and a similar call option, suggests a move of about 7 percent in either direction by Oct. 31.

That is short of the average move of about 10 percent in Facebook shares the day after the company reported results in the last eight quarters. The stock jumped as much as 14 percent in January, and nearly 30 percent in July last year when the company posted strong mobile advertising revenue.

Given that average, the price of the straddle seems cheap, WhatsTrading.com options strategist Fred Ruffy said.

Facebook's last two earnings reports showed growing strength in its mobile advertising business and have helped push the company's shares up nearly 31 percent over the last six months. The Standard & Poor's 500 index rose 3.5 percent over that period.

On Tuesday, Facebook investors will be looking for continuing signs that mobile ads are translating into revenue, to gauge if the company can keep up its recent momentum, said Baird Equity Research analyst Colin Sebastian.

Facebook was the second busiest name in the options market on Thursday, with 191,000 calls and 153,000 puts traded, according to Livevol Inc data.   Continued...

Mark Zuckerberg, founder and CEO of Facebook, reacts during an address to a gathering at the Internet.org Summit in New Delhi October 9, 2014. REUTERS/Adnan Abidi