Massive META Earnings Trade — $100 Million on the Line

Massive META Earnings Trade — $100 Million on the Line

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Trust us when we say, this UOA trade is nobody’s hedge — this is someone’s all-or-nothing bet. When it comes to unusual options activity, if the trade volume is far above the open interest, and more than, say, $100K, that’s a pretty notable trade. A $1M trade of that category is even more notable. The trade we’re talking about today is for over $100 million dollars. The trade is in META, and the timing is extremely notable — Meta’s earnings release tomorrow, on the same day as the FOMC meeting — and this trade expires in less than a month. Below, find the trade details:

  • TICKER: META
  • EXPIRATION: AUGUST 18TH
  • STRIKE: $280
  • PREMIUM: $22.90/CONTRACT
  • QUANTITY: 47,901
  • TRADE VALUE: $109,693,290

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Notably, this Meta bull made a similar call trade for the same amount of contracts (which also cost 9-figures) with Meta trading at $239.30 back on May 15th. This trade was bought yesterday, with Meta trading at $291.20 — 21.69% higher than their trade last May. Clearly, that surge in value hasn’t deterred this bull. 

Here’s a consideration when you trade options through earnings — you’ve got a few obstacles. The first is an obstacle for any options trade: theta. While this option is slightly in-the-money, this contract expires in less than a month, which means it needs to move soon in order to retain its extrinsic value

The second obstacle that traders must grapple with if they hold an option through earnings is implied volatility, or rather IV crush. When you buy a long option ahead of earnings, it’ll often be more expensive than usual, because earnings are known for larger than average moves in the stock price. The morning following earnings, once the numbers are out, that implied volatility will deplete almost immediately, which means you have to have been right about the direction and price of the stock in order to make up the difference. 

What is Extrinsic Value?

Extrinsic value is essentially the “extra money” that it costs to buy an option. For instance, if this option expired today, this option would actually be valued at about $13.00 — that extra $9.90 is how the options market prices in the possibility of more movement between now and the expiration date. As time goes on, or catalysts like earnings pass by, that extrinsic value depletes.

What is Meta’s Average Post-Earnings Move?

On average, Meta moves about ±11.59% on the day following earnings. If Meta remains where it is at roughly $293 until earnings, that would mean a post-earnings trade price of either $326.95 or $259.04, if the stock has an “average” move. Assuming the trader who made this trade is correct, that would mean a very large, 9-figure payday. If the trader is wrong, they’re going to have some very upset clientele, as the OTM version of this stock post-earnings will certainly experience significant IV crush.

Want to Trade It?

Here are a few choices. You could simply follow the trade, paying about $22.90 for the $280 strike calls, with a breakeven price of $302.90. 

However, if that’s too pricey, you could opt to use a debit spread to lower the price. If you were inclined to do that, you would be capping your potential gains. If you were to use the “average move” as your capped strike price, you would likely opt to sell the $325 call at the same date (August 18th) for its present value of $6.60. That would mean a total trade price of around $16.30, with a max trade value of $45.00 if the value of Meta is at least $325 at market close on August 18th. 

If that’s still too pricey, you could scale up your risk by adjusting your strikes, and moving to a closer expiration. One similar trade to consider would be the $300/$325 debit spread expiring Friday, July 28th. This would cost a total price of about $7.03 at the time of writing, and has a maximum trade value of $325 if on Friday, Meta closes at or above $325. While buying an out of the money spread 3 days from earnings always carries a risk, this version of the trade allows you to risk less than either version of the above trades, while still giving you exposure to a potentially 3.55X value trade if Meta moves higher and has its average move following earnings.

There are many other combinations you could find by exploring Meta’s option chain — and it’s never a bad idea to look at them. If you’re interested in taking on this high-risk, high-reward trade, you should be as comfortable as possible with the potential risks. As always, trade with a plan, trade with what you’re willing to lose, and be ready for anything. 

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