Facebook calls rally before earnings

A short-term bullish trade in Facebook is turning profits before quarterly results this week.

Last Tuesday, Investitute’s market scanners found that 9,200 Weekly $170 calls expiring on July 28 were purchased for $0.93 as part of a bullish vertical spread with shares at $161.64. Open interest in the strike was just 1,653 contracts before the trade appeared, showing that it was a new positions.

Today those calls traded up to $2.23, more than doubling in value. The stock rose less than 2.8 percent in the same time frame, illustrating how quickly options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

FB was up 0.95 percent to $166 today. The social network is scheduled to report earnings on Wednesday after the close.