Big Tech Earnings on the Horizon: What Are the Signals from the Options Market?

Next week, major tech stocks are set to release their earnings reports, with five of the 'Magnificent Seven' in the U.S. stock market announcing their performance, likely causing further "waves" in the market. What guidance does the options market provide?

Generally, implied volatility often spikes before a company releases its earnings, as market uncertainty drives up demand for options from speculators and hedgers. This heightened demand inflates both the implied volatility and the price of the options. Following the earnings announcement, implied volatility generally returns to normal levels.

Apple

$Apple(AAPL)$   is set to report earnings on January 30, 2025 after market close.

Backtesting the performance of Apple on its earnings days over the past year shows that the actual earnings moves often falls short of expectations. In the previous four quarters, the market expected a fluctuation of ±4.0%, but the actual earnings move was only ±2.1%.

This time, the options market has raised its expected move to ±5.26%, still expecting an increase in fluctuations.

From the perspective of implied volatility skew, which is measured by the difference between the implied volatility of 25-Delta Put and 25-Delta Call, indicates that market sentiment is Slightly Bullish on Apple, according to Market Chameleon.

The highest open interest contracts are calls, which have a strike price 18% higher than the current price and expire in about a month, according to Unusual Whales. Additionally, 65% of these were executed on the ask side. This suggests that options traders are bullish on the stock price movement of Apple after its earnings release.

Meta Platforms

$Meta Platforms, Inc.(META)$   is set to report earnings on January 29, 2025 after market close.

The options market overestimated Meta stocks earnings move 46% of the time in the last 13 quarters. The predicted move after earnings announcement was ±9.0% on average vs an average of the actual earnings moves of 12.5% (in absolute terms). This shows that Meta tended to be more volatile than the options market predicted for the earnings stock price reaction.

From the perspective of implied volatility skew, market sentiment is Slightly Bullish on Meta.

The Meta contracts with the highest options trading volume are concentrated at strike prices of 630 and 650, which are slightly higher than its current price, with most of the trading concentrated in near-term contracts.

Microsoft

$Microsoft(MSFT)$   is set to report earnings on January 29, 2025 after market close.

The options market overestimated Microsoft stocks earnings move 62% of the time in the last 13 quarters. The predicted move after earnings announcement was ±5.1% on average vs an average of the actual earnings moves of 4.0% (in absolute terms).

According to Unusual Whales, most of the option trades with premiums exceeding $100K and expiring within 30 days are betting on neutral and bullish outcomes.

Alphabet

$Alphabet(GOOGL)$   is set to report earnings on February 4, 2025 after market close.

The options market overestimated Alphabet-A stocks earnings move 38% of the time in the last 13 quarters. The predicted move after earnings announcement was ±6.1% on average vs an average of the actual earnings moves of 5.9% (in absolute terms).

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