Apple and Facebook Rise on Earnings, But The Market Has No Legs; Amazon and Google Are Next.

Apple stock rose more than seven dollars after Tuesday’s earnings announcement and provided a temporary boost to the E-mini S&Ps , but one stock doesn’t make a market and despite the capitalization of Apple, the market headed south in the mid-morning. Earnings season can have an enormous impact on the overall movement of the stock market, but even Facebook’s strong showing after the close on Wednesday, although it faded quite a bit when the market opened,  has had little effect on moving the market (other than the NASDAQ 100) higher. Amazon and Google will get an opportunity to have their impact after the market close on Thursday.

Strong results in Apple and Facebook would have suggested an opportunity to carry the overall S&P to higher levels. That, coupled with the Federal Reserve’s non-event announcement, seems to have left the S&P in a holding pattern. Tonight’s news about Amazon and Google may make the determination on market direction. Given the high price of both stocks, the potential for a significant move based on an earnings announcement is likely.

The Table below shows the price of the at-the-money straddle for Amazon and Google which expire tomorrow after the close. For AMZN that straddle costs more than $51 which means that there is a very real chance that Amazon will move more than that amount after the earnings announcement. For Google, the expected price movement is quite a bit lower and the at-the-money straddle is priced at just shy of $39.  The Table also provides the price of the straddle with an extra week to trade and shows the implied volatility for each option. Notice the substantially lower implied volatility of the options just one week out. Contact us to learning about individual options training webinars.

 

The second Table provides option prices for out-of-the money options expiring tomorrow. You can see how the market is pricing the options for a large move. The Table provides prices, taken Thursday morning, for several Strike Prices. The Table gives you the opportunity to evaluate the Implied Volatility, Vega, Delta and the liquidity percentage for each strike price. When analyzing options, these are essential bits of information whether you are trading one day options or vastly longer term options. In fact, the less time remaining, the less implied volatility, Vega and Delta really matter. By tomorrow morning, the value of most of these options will be decided.

 

A look at our Webinar Preview PDF will provide information about analyzing options in an organized fashion. While tomorrow could be a big day for the market as a whole, option traders of Amazon and Google better understand the risk associated with their positions. Options trading provide tremendous leverage and if the risks are not analyzed properly, the consequences can be extraordinary. I’m cautiously optimistic that if Amazon and Google come in with good reports, coupled with the news we’ve already had from Apple and Facebook, that the stock market can make a move higher. Without that good news, the summer may end with a negative tone.

Options trading involves significant risk and is not suitable for every investor. The information is obtained from sources believed to be reliable, but is in no way guaranteed. Past results are not indicative of future results.

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