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There's something about the Facebook chart that makes me want to buy, trader says

Facebook is at record highs, and TradingAnalysis.com founder Todd Gordon says there's something in the charts that leads him to believe that the stock has more room to run.

The tech giant is scheduled to report third-quarter earnings after the bell Wednesday, and Gordon is expecting Facebook to rally based on the company's previous reports.

What's more, the trader also says Facebook's charts are signaling that the stock has recently broken out of "consolidation" that began in August.

"That consolidation appears to be over and it looks like we are beginning to move higher," he said Tuesday on CNBC's "Trading Nation." "If we continue to follow this path post-earnings, we should be able to break up through and reach possibly $185, maybe even $190, on a strong earnings beat." That's another 3 to 5 percent higher than where Facebook closed on Tuesday around $180.

Since the market is expecting an $8 move in either direction on earnings for Facebook, Gordon wants to set up a "call butterfly spread" to not only go long Facebook, but to also make sure to protect himself against any big swings in the stock post-earnings. A call butterfly spread involves selling two calls at the same strike, and then buying one higher strike call and one lower strike call.

In this case, Gordon wants to sell two of the Nov. 3 weekly 185-strike calls, buy one of the Nov. 3 weekly 190-strike calls, and buy one of the Nov. 3 weekly 180-strike calls for a total of about 88 cents, or $88 for the whole spread.

With this trade, Gordon would make a maximum profit of about $414, which would occur if Facebook closed right at $185, the middle strike, on Nov. 3 expiration. Profits would trail off, however, the further Facebook closes away from $185 on Nov. 3 expiration, meaning that Gordon would see a maximum loss of $88 if Facebook were to close below $180 or above $190 on Friday.

"So basically, you're betting that the stock will move up, but in an expected range," he said. "Whether the earnings are terrible or absolutely amazing, you have a fixed manageable loss."

Facebook is up 56 percent year to date.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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