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Options Traders Flock to Calls Ahead of Google's Earnings Report

A larger-than-normal post-earnings swing is priced in for the FAANG name

Managing Editor
Apr 20, 2018 at 12:21 PM
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After Netflix (NFLX) reported earlier this week, the next FAANG name to take its turn in the earnings confessional will be Google parent Alphabet Inc (NASDAQ:GOOGL), which is scheduled to report first-quarter earnings after the close Monday. Ahead of the event, Credit Suisse tempered expectations for GOOGL shares, issuing a price-target cut to $1,350 from $1,400. Recent options buyers, meanwhile, remain bullish.

GOOGL stock has a mixed earnings history, enjoying a positive earnings reaction in four of the last eight quarters. Last February, the stock dropped 5.3% after earnings, but added 3.7% following its report last April. In the last two years overall, the equity has averaged a 3.3% move the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 6.4% one-day move, per Trade-Alert.

A move of this magnitude higher would have the Google parent filling its March 21 bear gap, and climbing back atop their 80-day moving average. Looking closer at the charts, Google stock, which is currently 0.7% lower to trade at $1,081.80, has added 26% year-over-year, and is on track for its best week in over a month. 

In the options pits, long calls are heavily preferred ahead of earnings. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 1.78. Not only does this show that bought calls have nearly doubled puts in the past two weeks, but the reading ranks in the 89th percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets of late.

Shifting gears to today, call volume has ramped up. Over 26,000 Alphabet call options have changed hands -- double the average intraday pace -- and volume is pacing for the 99th percentile of its annual range. The most popular is the about-to-expire April 1,090 call.

Either way, GOOGL has regularly made bigger moves on the charts over the past year, compared to what the options market was expecting. That's according to its Schaeffer's Volatility Scorecard (SVS) of 91 (out of 100).

 

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