Ahead of next week’s slew of big tech earnings, some options investors are positioning for prices to grind higher rather than see wild swings.
(Bloomberg) — Ahead of next week’s slew of big tech earnings, some options investors are positioning for prices to grind higher rather than see wild swings.
Take Friday, when a buyer purchased a block of about 2,300 September $135 calls on Amazon.com Inc. while selling roughly 4,600 September calls with a strike price of $150, paying a net premium of about $460,000. The bet: that shares will rise from the current level around $130, but not go too much past $150, at which point the potential profit starts to shrink and eventually turn to a loss.
Such so-called call spreads are a way to “capitalize on a moderate move higher without adding to downside risk profile,” said Chris Murphy, co-head of derivative strategy at Susquehanna International Group. “It feels like most of the easy money and sharp upside in AI has already happened and the next leg higher, if there is one, would be more of a grind.”
While these strategies are only a small part of the overall volume, analysts pointed to similar trades that have cropped up in other big tech names this week — including a move on Friday in Microsoft Corp., which saw $222,000 in premium change hands on a similar set of September call options.
The plays come ahead of impending earnings releases from a number of tech companies, including both Microsoft and Alphabet Inc. Although the Nasdaq 100’s more than 40% year-to-date rally cooled somewhat this week, the call spreads suggest some traders anticipate there’s at least a bit of room to run.
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“That’s a smart play,” said Mark Sebastian, founder of Option Pit LLC. “The idea is that you’re looking for a move, but not a huge move.”
He added that many investors expect heightened single-stock moves around the Nasdaq 100 index’s rebalance, which will reduce the weight of some of its biggest companies in the index. One-month implied volatility on companies like Amazon, Meta Platforms Inc., and Alphabet approached two-month highs.
Even so, positioning signals little moves at the index level, with implied volatility of Invesco QQQ Trust Series 1 (ticker QQQ) hovering around its lows of the year.
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