Options traders are forecasting a relative calm for shares of some tech behemoths ahead of earnings this week. They could end up being caught off guard.
Options pricing indicates investors are girding for smaller moves than normal for shares of some highflying tech companies. For example, traders are currently betting on a 4.1% swing the day after
Inc. reports earnings on Thursday, according to data provider Trade Alert as of early Tuesday. That is below the historical 4.8% move reported after the past eight financial releases.
reports on Wednesday and traders are bracing for a 6.5% swing after its earnings report, below the average 7.1% move recorded over the past two years, Trade Alert data show. They’re betting on a 10.3% move after
reveals financials on Friday before the market opens. That is under the 13.6% move after the past eight earnings releases.
In contrast, investors are forecasting a bigger than normal move for Google parent Alphabet—they’re betting on a 4.6% move after its earnings on Thursday, above the average 3.9% move, Trade Alert data show.
The projection measures the size of the stock move rather than the direction. It is based on a “straddle,” which entails buying both bullish and bearish options contracts that allow investors to buy or sell stock at a specific price.
It may not be wise to expect a calm stretch for tech earnings. Netflix Inc. stock fell 10.3% last Thursday after it reported disappointing subscriber data in its latest quarter, sending its shares to their biggest one-day percentage decline since July 2016.
Big tech companies have accounted for a large chunk of the S&P 500’s total return this year, and some analysts have been concerned that they are vulnerable to a pullback. The S&P 500’s information technology sector has been the best performing this year, gaining about 32% in 2019 through Monday. The communications services group has advanced about 19% through then.
Investors looking to protect against disappointing tech earnings—especially in light of [Netflix’s] 10% drop last week—could buy bearish put options on the Communication Services Select SPDR Fund, which tracks companies like Facebook, Alphabet and Twitter, wrote Mandy Xu, an equity derivatives strategist at
on Monday. Put options give investors the right to sell shares at a given price, later in time. Call options confer the right to buy stock.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
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