The Most Interesting Mega-Cap Earnings Play

Hey Traders,

It’s no secret that this is a huge week for earnings.

Just about every giant company reports this week.

Notably all of the megacaps report this week: Apple (Ticker: AAPL), Amazon (Ticker: AMZN), Microsoft (Ticker: AMZN), Facebook (Ticker: FB), Alphabet (Ticker: GOOGL), and Tesla (Ticker: TSLA).

But here’s the funny thing …

Volatility is cheap right now.

Even though this is the week for earnings, and all of the mega cap stocks report by Friday.

So here is the incredible thing …

Invesco QQQ Trust (Ticker: QQQ) — an ETF that tracks the Nasdaq 100 (Ticker: NDX) — volatility is actually really REALLY cheap:

Nasdaq 100 Volatility Index (Ticker: VOLQ) is the at-the-money (ATM) volatility index for the NDX.

Right now, it is about as cheap as we have seen it in the last six months, at 17.05 …

And that is crazy, considering all the earnings coming out!

What’s more, skew (the difference in volatility between strikes, or the cost of out-of-the-money options relative to at-the-money options) is actually pretty cheap.

The CBOE Nasdaq 100 Volatility Index (Ticker: VXN), which is the VIX of the NDX (so it looks at the entire options curve, rather than VOLQ which looks at ATM options) is only marginally higher, trading at 20.74.

The spread between the two — which gives us a really good look at skew — is only 3.7.

That is not high or low; it’s pretty normal actually.

So what does all this mean?

The QQQ might be the most interesting play on mega-cap earnings.

If you think mega-caps are going to the moon, calls might be in order.

My take? The run on earnings already happened. I will probably try to play puts early this week on QQQ.

Your Only Option,

Mark Sebastian


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