Options Markets Create Opportunity For Facebook And Google Before Earnings

The options markets create an opportunity for investors of Facebook Inc FB and Alphabet Inc GOOG GOOGL before earnings, according to a note from Deutsche Bank.

"Options on FB (Buy PT $145) are pricing in an average implied earnings move of ~6.8 percent, materially higher than the 4.7 percent 6-quarter absolute average the company has experienced. The 1x2 put-spread would make money in a pullback until the 95 breakeven price, which represents a 17 percent drop," analysts including Lon Parisi wrote in a note to clients.

The put-spread would lose dollar for dollar below $95. The most extreme downside earnings move Facebook has experienced is 11.7 percent, the analyst added.

Related Link: 3 Options Trades Goldman Is Watching With Catalysts Coming

With about 28 percent upside to his price target, Ross Sandler of Deutsche Bank said earlier this week, the first-quarter results of "may come in light," offering investors an "opportunity to add to positions below current levels."

Earnings' Influence

Meanwhile, Parisi noted that options on Google (Buy, PT $1080) are pricing in an average implied earnings move of about 5.2 percent, materially lower than the 7.6 percent 6-quarter absolute average the company has experienced.

With about 41 percent upside to his price target, analyst Sandler believes this earnings announcement from Alphabet will likely provide few surprises.

For the first quarter, Sandler expects a "strong revenue, but mixed EPS" print, which the street is largely prepped for. According to Sandler, the biggest driver of the re-acceleration is simply the math behind mobile search crossing 50 percent of queries, and the steady monetization improvements, a trend that should last for several more quarters, if not years.

On the EPS side, Sandler noted that Google provided cautious comments around first quarter operating expenses in early March (FX, senior exec equity refreshes, etc.), somewhat de-risking any weakness versus consensus $8.06 in EPS and $8.3 billion in EBITDA.

At time of writing, shares of Facebook were up 0.69 percent to $114.50 and Alphabet dropped 0.11 percent to $744.88.