MW 7 stocks expecting a post-earnings jolt - including Applied Materials and Cisco Systems
By Lawrence G. McMillan
S&P 500 investors are charging ahead - and bullish market indicators blaze the trail
The S&P 500's rally above 7,000 is still going strong.
The heaviest concentration of quarterly earnings reports has passed, but a few to watch coming up next week include Cisco Systems $(CSCO)$, Hims & Hers Health $(HIMS)$, Alibaba Group Holding (BABA) and Applied Materials $(AMAT)$. We look for earnings surprises - which according to the charts have a particular pattern of implied volatility heading into the earnings.
The CSCO two-year chart below is an example. The bottom graph shows the stock price, with implied volatility on the upper graph. Notice that implied volatility increases into a spike and then plunges, creating a sawtooth pattern.
These implied volatility increases occur as the earnings date approaches. Then implied volatility plunges after the earnings are announced. An option that doesn't lose value to time decay (which these don't over the couple of weeks heading into the earnings) has the appearance of increasing implied volatility. So, every week when we publish the list of potential post-earnings moves, the top candidates are stocks that display this sawtooth pattern surrounding past earnings dates.
The table below lists several notable companies reporting earnings next week. This list normally is made up of stocks whose options have increased implied volatility. That is, the option market is expecting a potentially volatile move after the earnings news.
Our approach is to attempt to buy the shortest-term straddle possible (generally the one expiring on the Friday after the earnings reporting date) and to exit at the close of the first full day of trading after the earnings have been reported. For the stock listed in this table, that would mean buying the straddles expiring on May 15.
Specifically, the columns below (from left to right) are:
Date: The earnings reporting date.
AM/PM: Whether the earnings are to be reported before the market opens ("AM") or after the market closes ("PM").
Symbol: The stock symbol.
Needed: the most that we would pay for that near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price. In reality, this is the percentage move that is smaller than six of the past 10 post-earnings moves in this stock.
OptVol: The 20-day average of total option volume on this stock. Low numbers here indicate a potentially illiquid situation.
Date AM/PM Symbol Needed OptVol 5/11/26 PM HIMS 6.00% 191,820 5/12/26 AM JD 2.86% 36,176 5/12/26 AM SE 8.21% 5,387 5/13/26 AM BABA 6.01% 121,426 5/13/26 PM CSCO 2.67% 46,529 5/14/26 AM CSIQ 2.90% 7,403 5/14/26 PM AMAT 5.25% 19,350
None of the at-the-money straddles on the stocks in the above table are currently trading for less that the "count" (needed) - percentage. Check them just before the earnings are announced, for that would be the time to buy them if they do satisfy the "count" requirement.
Is oil about to spill?
The oil market has exploded upward since the start of the Iran war. However, much of this appears to be a panic-driven move. While it's unclear what the fundamentals are, the fact is that much of the world's oil was not affected by the blockage of the Strait of Hormuz, so prices seem to have overreacted, and some cheap option positions are possible that could profit nicely if oil (CL.1) (BRN00) prices decline.
We are focusing on United States Oil Fund USO, an exchange-traded fund. On the chart below, you can see that USO hasn't looked back since it passed $100, with the exception of a couple of retests in the $108-$110 area.
So, one simple way to play for a pullback here is to buy a put bear-spread with deeply out-of-the-money options.
Buy 2 USO (June 18) 100 puts and sell 2 USO (June 18) 90 puts for a debit of 1.00 or less.
This spread could pay off 9 to 1 if USO were to fall back below $90 by expiration, since it could expand to 10 points in that case (the difference in the strikes).
Stock-market bulls are emboldened
The S&P 500 Index SPX has support at the bottom of the gap on the chart, at 7,233, and then 7,175, at 7,100, and at the important line in the sand of 7,000.
SPX closed above the +4<SIGMA> "modified Bollinger band" (mBB). That stops out the previous "classic" sell signal (which we did not trade). Now the potential process of setting up a McMillan volatility band (MVB) sell signal has to begin again. The first step would be another classic sell signal, which will occur if SPX closes below its +3<SIGMA> band. Yet we would not trade that classic sell signal. Rather, it would take further downside confirmation to generate an MVB sell signal.
Equity-only put-call ratios remain on buy signals as they continue to drop. The weighted ratio is now down to the S&P 500's 2025 lows and looks to be headed lower. This is an overbought condition, but not a sell signal for stocks. Sell signals will only occur when the ratios roll over and begin to rise.
Stock-market breadth is positive and now both breadth oscillators are on buy signals (the "stocks only" oscillator was on a buy signal all along). In addition, all four of the cumulative breadth indicators made new all-time highs on Wednesday - strong confirmation of market strength. New highs continue to outnumber new lows on the New York Stock Exchange, so this indicator remains bullish.
The Cboe Volatility Index VIX is still showing some signs of worry. Its 20-day moving average is close to crossing below the 200-day MA. That would generate a buy signal for stocks.
The construct of volatility derivatives remains bullish. Like VIX, it is not as bullish as it could be: The term structure of the VIX futures rises in the front end of the curve but then flattens out. The Cboe volatility indices' term structure is more steeply sloping, and VIX futures are trading at a fairly large premium to VIX.
This rally is going strong and we will continue to ride it. Eventually, confirmed sell signals will appear, but until then, continue to roll deeply in-the-money calls up to higher strikes.
Follow-up action:
All stops are mental closing stops unless otherwise noted.
We are using a standard rolling procedure for our SPY SPY spreads: In any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. So roll up in the case of a call bull spread, and roll down in the case of a bear-put spread. Stay in the same expiration and keep the distance between the strikes the same.
Also, for outright long options, roll if they become 8 points in-the-money.
Long 1 TSEM (May 15) 220 call and short 1 TSEM (May 15) 235 call: Roll up - 15 points each - and out to June 5 expiration, if TSEM $(TSEM)$ trades at $235 or higher.
Long 1 BKR $(BKR)$ (July 17) 65 call and long 1 BKR (July 17) 60 put: Roll the call up at $75 and roll the put down at $50.
Long 2 ARKK ARKK (May 15) 78 calls: Set a trailing closing stop at $76 for these calls.
Long 1 SFL (Aug. 21) 10 straddle: Roll the calls up if SFL $(SFL)$ trades at $13 and roll the puts down if SFL trades at $7.
Long 1 SPY (May 15) 705 call and short 1 SPY (May 15) 730 call: This is based on the "new highs vs. new lows" buy signal and will remain until new lows outnumber new highs on the NYSE for two consecutive days. Since SPY has reached 730, roll up and out to the SPY (Jun 5) 730-755 call bull spread.
Long 1 SPY (May 15) 705 call and short 1 SPY (May 15) 730 call: This position is based on the equity-only put-call ratio buy signals and will remain in place until the ratios bottom out and begin to trend higher. Since SPY has reached 730, roll up and out to the SPY (Jun 5) 730-755 call bull spread.
Long 2 MHK (May 15) 105 calls: We will hold these calls as long as the weighted put-call ratio of MHK $(MHK)$ remains on a buy signal.
Long 3 CCL (June 18) 27 calls: We will hold these calls as long as the weighted put-call ratio for CCL $(CCL)$ remains on a buy signal.
Long 3 BWA (BWA )(May 15) 55 calls: We will continue to hold as long as the put-call ratio is on a buy signal.
Long 1 BNS (Sep. 18) 75 straddle: Roll the calls up to the $85 strike if BNS $(BNS)$ trades at $85. Similarly, roll the puts down to the $65 strike if BNS trades at $65.
Send questions to: lmcmillan@optionstrategist.com.
Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading adviser. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of "Options as a Strategic Investment." www.optionstrategist.com
(c)McMillan Analysis Corporation is registered with the SEC as an investment advisor and with the CFTC as a commodity trading advisor. The information in this newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corporation, or accounts managed by such persons may have positions in the securities recommended in the advisory.
-Lawrence G. McMillan
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May 07, 2026 17:12 ET (21:12 GMT)
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