How the options market is pricing in Mag 7 earnings

Key Concepts

• Options Market Pricing: The implied volatility of an underlying asset's stock price movement as indicated by the options market.
• Implied Move: The percentage change in stock price that the options market is anticipating following an event, such as an earnings report.
• Call Spread Risk Reversal: An options trading strategy involving the purchase of a call option and the sale of another call option at a higher strike price, often used to express a bullish view with limited risk and cost.
• Topline Growth: An increase in a company's total revenue.
• Bottom Line Growth: An increase in a company's net income or profit.
• Free Cash Flow (FCF): The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Options Market Expectations for Tech Earnings

This section details the anticipated stock price movements for major tech companies based on their options market pricing ahead of their earnings reports.

• Microsoft: The options market is pricing in an approximate 4.5% move in Microsoft's stock price.
• Alphabet: The options market is pricing in an approximate 6.1% move in Alphabet's stock price.
• Meta: The options market is pricing in an approximate 6.5% move in Meta's stock price.
• Apple: The options market is pricing in an approximate 3.4% move in Apple's stock price.
• Amazon: The options market is pricing in an approximate 6% move in Amazon's stock price.

Analysis of Apple's Options and Strategy

This section focuses on Apple, highlighting the attractiveness of its options premiums and a specific bullish strategy.

• Apple's Growth Metrics:
  • Topline Growth: Now exceeding 6%, a significant improvement from previous periods where it was not growing.
  • Bottom Line Growth: Projected to be around 9%.
  • Free Cash Flow (FCF) Growth: Also showing positive growth.
• Options Premiums: The options premiums for Apple are described as "cheap."
• Bullish Strategy: A specific options trade, the December 240-265-290 call spread risk reversal, is discussed.
  • Cost: This strategy would cost approximately five bucks, which translates to about 2% of the current stock price.
  • Objective: This strategy is presented as a way to "press your bullish bets" on Apple.

Synthesis and Conclusion

The options market is indicating varying levels of expected volatility for major tech companies reporting earnings next week, with Meta and Amazon showing the highest implied moves. Apple, despite a lower implied move, presents an interesting opportunity due to its recent acceleration in topline and bottom line growth, coupled with favorable options premiums. A specific call spread risk reversal strategy is suggested for bullish investors looking to capitalize on Apple's potential upside at a relatively low cost.