Options Traders See Bull Flag Ahead Of Facebook's Q2 Print

Facebook Inc FB is set to print its second-quarter earnings results after the closing bell on Wednesday and the stock ran up toward the event before beginning to consolidate the move on Monday.

On Tuesday, the social media giant’s stock continued to pull back, amid overall market weakness, and options traders took advantage of the dip to position themselves in $1.86 million worth of bullish call contracts. The options traders may be betting on a bullish reaction to Facebook’s earnings or they may believe technical analysis indicates the stock is headed higher.

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The Facebook Chart: Facebook created a bullish double bottom pattern on July 19 and 20 at a support level near the $334 mark. The stock then rallied 12% up from the level and put in a new all-time high at $375.33.

The rally between July 20 and 23 created the pole of a bull flag pattern and Monday and Tuesday’s consolidation created the flag in the pattern. Although Facebook could continue to trade within the parallel flag pattern for longer the anticipated measured move, if the bull flag is recognized, could see the stock surpass the $400 level.

Facebook is trading above both the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending above the 21-day EMA, both of which are bullish indicators. The stock is also trading above the 200-day simple moving average indicating overall sentiment in the stock is bullish.

• Bulls want to see Facebook’s stock break up bullishly from the flag formation and for momentum to push it up into blue skies. If Facebook is able to surpass its all-time high,it has no resistance in the form of price history above.
• Bears want to see a bearish reaction to Facebook’s earnings and for the stock to drop back down toward the $358 area. If Facebook was unable to hold the level as support it could revisit a lower support area at $349.

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The FB Trades: Below is a look at the notable options alerts, courtesy of Benzinga Pro:

• At 9:39 a.m., a trader executed a call sweep near the midpoint of 200 Facebook options with a strike price of $400 expiring on July 30. The trade represented a $26,600 bullish bet for which the trader paid $1.33 per option contract.
• At 10:00 a.m., a trader executed a call sweep near the ask of 267 Facebook options with a strike price of $370 expiring on Sept 17. The trade represented a $488,610 bullish bet for which the trader paid $18.30 per option contract.
• At 10:08 a.m., a trader executed a call sweep near the ask of 201 Facebook options with a strike price of $380 expiring on Sept 17. The trade represented a $259,290 bullish bet for which the trader paid $12.90 per option contract.
• At 10:08 a.m., a trader executed a call sweep near the ask of 389 Facebook options with a strike price of $380 expiring on Sept 17. The trade represented a $497,920 bullish bet for which the trader paid $12.80 per option contract.
• At 10:35 a.m., a trader executed a call sweep near the ask of 331 Facebook options with a strike price of $370 expiring on Sept 17. The trade represented a $529,600 bullish bet for which the trader paid $16 per option contract.
• At 11:18 a.m., a trader executed a call sweep near the ask of 464 Facebook options with a strike price of $400 expiring on July 30. The trade represented a $61,712 bullish bet for which the trader paid $1.33 per option contract.

FB Price Action: Shares of Facebook traded around $365.45 at publication time.