A Mega Week For Mega Caps

Hey Traders,

Finish this sentence: “If I had a time machine, I would …”

I know most of you are probably thinking “I would fast-forward to Thursday’s Hedge Fund Secrets Revealed event so I can learn how to use hedge fund ‘secrets’ for my own trading!”

But I bet some of you also thought “I would go back and invest in Google/Amazon/Apple/etc.”

And who could blame you? If only we had a crystal ball to spot the next mega-cap …

Sadly, no such thing exists. 

But if it did … this would be the week to use it! We have mega cap earnings galore over the next few days, so be prepared to see some waves as the biggest names on the market take their turn at the earnings confessional. 

You’ve probably already heard my take on Apple (Ticker: AAPL) earnings, which are slated for Tuesday.

But let’s take a look at some of the other behemoth earnings coming out in days ahead.

Tesla (Ticker: TSLA)

Tesla kicks off the week, reporting earnings after the market closes today. The EV giant is expected to report a 90% year-over-year growth in revenue to $11.4 billion, and more than a 110% growth in earnings per share.

Looking at the last eight quarters, TSLA has finished higher in the session after earnings only three times, with a median move of just 2.4%. This time around, it looks like options plays are pricing in about a 7% swing, judging by current at-the-money straddle prices. 

In the pits, options traders are getting quite a deal on pre-earnings TSLA, with its 30-day at-the-money implied volatility (ATM IV) sitting in the bottom 5% of its annual range. Of the options expiring on Friday, July 30, out-of-the-money options seem to be attracting the most attention, with the 500-strike puts holding the heaviest open interest, and the 750-strike being the most popular on the call side. However, looking at near-the-money options, the 640-strike puts and 650-strike calls are the top open-interest positions.

Microsoft (Ticker: MSFT): Tuesday, July 27

AAPL will have to share the spotlight on Tuesday, as rival Microsoft is also due to report earnings after the closing bell. Hopes are high that working and learning from home will help boost the tech giant’s year-over-year revenue to $44.1 billion from last year’s $38 billion. MSFT has a history of out-performing expectations, though, so it’ll need a heck of a win to surprise traders.

Of the last eight quarters, MSFT has actually finished higher in the session after earnings five times, with a median move of 2.4%. 

One-year chart of MSFT with earnings notated.

It looks like options traders aren’t pricing in a significant move for the shares, with a July 30 at-the-money straddle indicating about a 3.2% swing expected. MSFT’s 30-day ATM IV is also rather low ahead of earnings, in just the 14th percentile of its 52-week range.

If we take a look into MSFT’s pits, of the near-the-money July 30 options, traders are targeting the 297.5-strike calls, while the heaviest open interest in near-the-money puts lies at the 272.50-strike.

Alphabet (Ticker: GOOGL): Tuesday, July 27

Tomorrow will certainly be one for the books, with mega cap Alphabet also slated to report. The Google parent company is currently trading near all-time highs, and is expected to outperform the other FANG stocks, and outperform already-high expectations that foresee the tech giant reporting profits of nearly double the year prior. No pressure, right?

One-year chart of GOOG with earnings notated.

GOOGL has moved higher in its after-earnings trading session three of the last four quarters, and currently at-the-money July 30 straddles are pricing in a post-earnings swing of 4.3% — larger than GOOGL’s median 3.3% move.

Digging into July 30-term, near-the-money options, GOOGL’s 2,700-strike calls hold the most call-side open interest, while the 2,600-strike puts are the most popular on the put-side.

Facebook (Ticker: FB): Wednesday, July 28

Boosted by positive results from Twitter (Ticker: TWTR) and Snap Inc. (Ticker: SNAP) earnings reports last week, the OG social media stock Facebook is expected to report Q2 revenue of $27.8 billion — a 49% year-over-year increase.

With FB shares seeing a median post-earnings move of 5.8%, it looks like options players are expecting more of the same from Facebook, with July 30 straddles showing a 5.7% post-reporting swing being expected. As far as the direction, it could go either way, with the tech stock moving higher and lower in the session after earnings four times each over the last eight quarters.

Looking at July 30 near-the-money strikes, the 320-strike puts hold the highest open interest, versus the 370-strike calls, which hold the highest open contracts on the call-side.

Amazon (Ticker: AMZN): Thursday, July 29

The Street is also expecting an earnings outperformance from online retail giant Amazon, with an expected year-over-year revenue increase of 29%. This quarter marks the last of the Jeff Bezos-led era, so investors will also likely be listening closely for any hints of future performance, though AMZN typically doesn’t issue guidance.

Looking at near-the-money open interest, the heaviest open interest strike on the call side is at 3,700, while put players seem to be targeting the nearby 3,680-strike — both higher than where AMZN is currently trading at $3,656.64.

At-the-money straddles indicate about a 4.5% post-earnings swing being priced in, higher than AMZN’s median 2.8% move over the last eight post-earning sessions. In spite of the trillion-dollar company’s habit of blowing earnings expectations out of the water, the shares have actually ended lower after six of the last eight post-earnings trading sessions. It seems like AMZN traders typically have quite high expectations, and there’s not much reason to believe they’ll settle for any less this time around!

Now, these are hardly the only important earnings we can expect to see this week.

Be sure you’re checking the earnings calendar, not only to watch the big names, but to make sure you know when earnings are slated for any companies you’re currently trading. I’ve mentioned before that I don’t like to hold through earnings, so I advise you to at least know the dates you should be closely watching to avoid any surprises.

Your Only Option,

Mark Sebastian

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