This week, major tech companies including Amazon (AMZN, Financial), Apple (AAPL), Meta (META), and Microsoft (MSFT) are set to release their quarterly earnings reports. The market is keenly watching not only their financial performance but also the subsequent stock price movements, particularly in the options market.
Options traders often increase the prices of call and put options significantly before earnings announcements, reflecting expectations of stock price volatility. A common metric used is the "straddle" price, which involves buying both a call and a put option with strike prices near the current stock price, indicating the market's forecast for potential price swings.
For instance, Amazon's earnings report is due post-market on May 1. If the stock price is around $185, and the combined price of call and put options expiring on May 2 with a $185 strike price is $13, it suggests a potential 7% price swing. Historically, Amazon's post-earnings price changes exceeded 7% in four out of the last ten quarters.
In contrast, Apple's and Microsoft's options appear less favorable. Apple's options straddle price is about 5.3% of its stock price, with only two instances of exceeding this in the past ten quarters. Microsoft's options are priced at about 5%, with only four past occurrences of meeting or exceeding this level.
Meta presents a unique case, with its options straddle priced at 8.3% of the stock price. Historically, Meta has seen significant post-earnings movements, with five instances exceeding this level, including three over 20%, while the other five were below 4.4%.
Investors betting on significant volatility in Meta's stock post-earnings might find the current straddle price reasonable, although there's a risk of losses if the stock remains stable.
