Facebook, Inc FB shares are up 24.9% over the past month. But at least one large option trader is betting next week’s earnings report will be a reality check for the stock.
The Facebook Trade
On Friday, Benzinga Pro subscribers received an option alert related to an unusually large Facebook trade.
- At 12:01 p.m., a trader bought 529 Facebook put options with a $160 strike price expiring on May 15 at the ask price of $1.90. The trade represented a $100,510 bearish bet.
Why It’s Important For Facebook Investors
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.
In this case, given the relatively small size of the put purchase on Friday, it’s unlikely to be an institutional hedge.
Facebook Earnings Miss Coming?
The most obvious explanation for the large put purchase on Friday is that a deep-pocketed trader simply believes Facebook is going to report some disappointing first-quarter earnings numbers on April 29.
Analysts expect COVID-19 to continue to drive down advertising spend in the near-term, which will likely weigh on Facebook’s near-term numbers. Analysts are expecting Facebook to report first-quarter earnings per share of $1.75 on revenue of $17.52 billion, up 16.2% from a year ago.
Even before the coronavirus outbreak, Facebook had been dealing with a revenue growth slowdown for years. Fourth quarter revenue was up 25% compared to 30% in the fourth quarter of 2018 and 47% in the fourth quarter of 2017.
Social media usage and engagement has been on the rise in recent months due to social distancing forcing people online. Unfortunately for Facebook investors, DataTrek Research reported on Friday that TikTok has been stealing market share from Facebook and Instagram during the COVID-19 outbreak, especially among younger users.
Bullish sentiment among StockTwits messages mentioning Facebook was 58.2% on Friday, down from 2020 highs of 91.8% back on Jan. 7.
Benzinga’s Take
The large option trader may be betting more on disappointing guidance from Facebook than particularly bad first-quarter numbers given the economic shutdown didn’t ramp up late in the quarter. The puts purchased have a break-even price of $158.10, suggesting at least 14.6% downside in the next three weeks.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
Related Links:
A JPMorgan Strategist's Aggressive Harley-Davidson Option Trade Ahead Of Earnings
Facebook Invests $5.7B In One Of India's Largest Internet Services Companies
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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