I just want to share with you folks a quick earnings analysis for Facebook based on option prices.
Implied move = 7.57% (up or down) or about 15.3 points at current prices.
Mean historical move after earnings = 5.48%
As you can see options are on the overpriced side when compared with the mean move, and doing a statistical analysis we can get the probability options dealers are correct:
Probability of being correct = 64.8%
Which is a bit higher than a coin toss, and provides a very small edge for those of you that want to bet on the same side that options dealers. In other words, playing this earnings cycle with a non-directional play have a positive small edge (betting on the move being contained within the 15.3 points range up or down).
Personally, the edge is too small for me. Remember that earnings plays are very speculative and it is better to take trades with bigger edges.
