Options Traders Wager On Smooth Sailing For Tech
July 23 2019 - 12:00PM
Dow Jones News
By Gunjan Banerji
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 Amazon.com, 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.
Facebook Inc. 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 Twitter Inc. 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 Credit Suisse,
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
(END) Dow Jones Newswires
July 23, 2019 11:45 ET (15:45 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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