Our news-heavy week continues. Yesterday we highlighted options market expectations for Alphabet (GOOG, GOOGL) and Advanced Micro Devices (AMD) – the market got one of them correct and wasn’t too far off on the other. Today it’s time to focus on Microsoft (MSFT) and Meta Platforms (META), the third and fifth largest US companies by market capitalization.
We noted that options markets were pricing in a move of about 6% for GOOGL, and the stock is up by just under that amount this morning. For AMD, however, “only” a 7% move was priced in. It is currently about -10% lower. Neither stock was pricing in a directional move, so the fact that we have one up and one down is not unexpected. The broader market opened lower, thanks in part to the earnings-related drops in AMD, along with Eli Lilly (LLY, the 10th largest US company), and Chipotle (CMG), along with the plunge in Super Micro Computer (SMCI) on the announcement that their auditor resigned. But then traders seemingly remembered once again that all dips are now utilized as buying opportunities, and stocks recovered into positive territory.
Some of the rise is indeed predicated on solid economic news, which is indeed a good reason for equity investors to be enthused. The ADP Employment Change report showed a stunning rise of 233,000 when only 111k was expected. That could cause estimates for Friday’s Nonfarm Payrolls to rise, but others tend to be dismissive of ADP’s predictive ability. Third quarter GDP was solid at 2.8%, a shade below the 2.9% consensus, while the Core PCE Price Index rose by 2.2%, just ahead of the 2.1%. None of that data had much of an impact on bond prices or expectations for the FOMC’s next move, though.
As we move toward today’s earnings, we see that one of these two Magnificent 7 stocks has been far more magnificent over the past year. MSFT got off to a great start but has not recaptured its earlier highs. META, however, has been pushing consistently higher:
1-Year, MSFT (red/green candles), META (blue line)
Source: Interactive Brokers
Unlike both GOOGL and AMD yesterday, the IBKR Probability Lab for MSFT shows an asymmetrical pattern. The peak is around the $420 level, about 3.8% below the current price, though the probabilities for a move anywhere between $415 and $450 are all generally similar:
IBKR Probability Lab for MSFT Options Expiring November 1st, 2024
Source: Interactive Brokers
The skew graph shows the now-familiar “W” shape that we see for weekly options ahead of megacap tech earnings. This shows once again that options traders do not have a strong desire to strictly hedge against downside – they also want to be able to participate in a potential upward move. The at-money implied volatility of roughly 4% on a daily basis is a bit above the 3.27% average for the most recent six post-earnings moves for the stock (-1.08%, +1.82%, -2.69%, +3.07%, -3.76%, +7.24%).
Skews for MSFT Options Expiring November 1st (dark blue), November 8th (light blue), November 15th (yellow)
Source: Interactive Brokers
Yesterday we noted that AMD’s setup was nearly identical to that of GOOGL’s, and today we can say the same thing about META vis-à-vis MSFT. The IBKR Probability Lab for META also shows an asymmetrical pattern. The peak is around the $565 level, about 6% below the current price, though the probabilities for a move anywhere between $550 and $6000 are all generally similar:
IBKR Probability Lab for META Options Expiring November 1st, 2024
Source: Interactive Brokers
Meanwhile, META’s skew graph also shows the “W” shape. Its implied volatilities are well above those of MSFT, but the nearly 8.5% expected move is a bit below the 9.62% average of the past six post-earnings moves (+4.82%, -10,56%, 20.32%, -3.73%, +4.4%, +13.93%):
Skews for META Options Expiring November 1st (green), November 8th (blue), November 15th (yellow)
Source: Interactive Brokers
Bottom line, neither stock’s options are anticipating anything too crazy for today’s report, though perhaps META traders seem a bit more sanguine about the company being able to continue its stellar uptrend. We’ll find out soon enough.
Disclosure: Interactive Brokers
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Disclosure: Probability Lab
The projections or other information generated by the Probability Lab tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Please note that results may vary with use of the tool over time.
