Last week kicked off the earnings season ‘officially’ with Alcoa (AA) and was dominated by financial giants Citigroup (C ) and JP Morgan Chase (JPM). This week as the Republicans gather in Cleveland to celebrate the Cavaliers NBA championship, (and officially nominate their “presumptive” candidate) we get a bit of variety in earnings announcements across multiple sectors for traders’ palates…
For traders, specific stock earnings will be the focus as the economic calendar slows down significantly. Highlights are:
In the financial sector, Bank of America (BAC) reports Monday morning followed by Goldman Sachs (GS) Tuesday before the bell. Wednesday American Express and Morgan Stanley will report
The Industrial sector will show quarterly results for General Electric (GE), and airline companies American Airlines Group (AAL) and United Continental Holdings (UAL)
The Consumer Discretionary names include General Motors (GM), Starbucks (SBUX) and Netflix (NFLX)
And the Tech sector’s earnings are led by Intel (INTC), Microsoft (MSFT), IBM (IBM) Qualcomm, (QCOM) and Yahoo (YHOO)
With weekly option expirations it is possible for stock investors to use the option chain at the money straddle price to gain a glimpse of what the options’ markets believe the earnings event movement will be. It is sort of like seeing into the future to better prepare for the upcoming reality. Of course the actual movement will match what the options predict but here is how it works.
Goldman Sachs reports tomorrow before the opening. Let’s take a look at the July 22nd 162.50 straddle:
Don’t worry that the stock is not trading at exactly 162.5 – it is close enough. The ATM straddle is trading at 4.93 on the bid side, 5.03 on the offer side. If we split the difference and take the mid-market, that is 4.98. 4.98 divided by the strike price 162.50 is 3.06%. The options are telling us to expect a 5 dollar (or 3%) move up or down this week that includes earnings. It is important to remember that Straddles are not predictors of direction, but rather a prediction of a potential move higher OR lower. Option traders are already in tune with looking at straddles to determine what the market thinks about an earnings move, buy you stock traders should use the chain as well to be forewarned about the potential impact the upcoming announcement may have on your stock holding.
You can view all the upcoming earnings on the calendar tool on the OptionsHouse platform to remain in control!
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