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Dan Nathan's Facebook Trade

Dan Nathan spoke on CNBC's Options Action about Facebook Inc FB. The company is going to report earnings on November 2 and he suggested that traders should consider an options strategy ahead of earnings.

Nathan explained that the options price in Facebook is very high and the options market is implying a 6 percent move in either direction on earnings. A 6 percent move higher, would mean a move to $139 and Nathan wants to buy a call butterfly in order to make money on a potential move higher.

Specifically, he wants to buy the November 130 call for $5.25, sell two November 140 calls for $1.20 each and buy the November 150 call for $0.15. The options structure would cost him $3, which is his maximal loss. It breaks even at $133 and it can maximally make a profit of $7, if the stock moves to $140. Above $140, the profit starts to trail off and the trade starts to lose money above $147.

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