Hold on tight because one top stock could be preparing to take off into earnings.
Facebook shares, which are less than 1% from matching their record high, might traverse even more peaks when the company reports Jan. 29 on its recent quarter, TradingAnalysis.com founder Todd Gordon said.
"Facebook [has made] a new all-time high ... despite all the negative headlines that we saw last year – very, very strong move up and I can tell you guys from a very simplistic logical point of view, new highs in Facebook and the stock market are not a bearish thing. Let's stop overthinking this here," Gordon said Tuesday on CNBC's "Trading Nation."
The social network broke out to new highs earlier this month for the first time since 2018. From its July 2018 peak to a bottom later that year, the shares had fallen 43%. It then took more than a year for the stock to recoup losses as worries over privacy and threat of regulation kept investors away.
"We saw a lot of bad headlines in 2019 -- rightfully so. We saw an FTC probe for antitrust which has been sort of dismissed, for now. We saw obviously Facebook leveraging the user data to target political ads — that's a bit of a problem as well — but investors shrugged that news aside to continue to push Facebook up," said Gordon.
After a strong third quarter, Gordon anticipates continued growth from Facebook when it reports its fourth-quarter results later this month. Analysts surveyed by FactSet expect earnings to rise 6% compared with a year earlier.
"The options market is looking for about a $14 move into earnings. The trade I have set up for you right here are the options that are expiring Jan. 31 so just a couple days after the earnings are to be reported. The expected move puts us up around $235 from current price of just [around] $221," he said.
A move to $235 implies 6% upside and would mark a new high. Gordon has a way to profit if that move comes to pass.
"If you are just comfortable with doing debit spreads, you could buy something like the $225 call which is just a little bit above us, selling the $235. That's a $10 spread that's going to cost you about $3.11 so the difference would be your max profit which would be right here at about $692 total per option spread," he said.