Yesterday we highlighted the busy week ahead, chock full of crucial earnings and economic reports. The parade begins after today’s close when Alphabet (GOOG, GOOGL) and Advanced Micro Devices (AMD) release their Q3 earnings.
Both companies are considered key players in artificial intelligence, even though they have been overshadowed by larger peers. GOOGL got off to a slower start in integrating AI into its search than Microsoft (MSFT), while AMD clearly trails Nvidia (NVDA) on the hardware side. Their one-year performances have been quite solid, though both are also well below the highs they set earlier this year:
1-Year Chart, GOOGL (red/green daily candles), AMD (blue line)
Source: Interactive Brokers
GOOGL has one of the most neutral setups that I can recall. For options expiring this Friday, the IBKR Probability Lab is almost perfectly symmetrical (though the preponderance of upside strikes shifts the curve to the right), with a peak in at-money options:
IBKR Probability Lab for GOOGL Options Expiring November 1st, 2024
Source: Interactive Brokers
The implied volatility for weekly at-money options is roughly 6% (measured on a daily basis), which is appropriate considering the last six monthly post-earnings moves average 6.3% (-5.04%, +10.22%, -7.50%, -9.51%, +5.78%, -0.13%). Skews are quite flattish, with a now-familiar “W” shaped skew. This shape has become increasingly customary for megacap tech skews, replacing the more historically typical “Elvis Smile” that indicates risk aversion. Skews for the subsequent two weeks are also relatively flat.
Skews for GOOGL Options Expiring November 1st (dark blue), November 8th (light blue), November 15th (yellow)
Source: Interactive Brokers
As for AMD, it is uncanny. I can essentially substitute “AMD” for “GOOGL” in the prior paragraphs. The Probability Lab is similarly symmetrical though the preponderance of upside strikes also stretches the curve to the right. And the peak is also in at-money options.
IBKR Probability Lab for AMD Options Expiring November 1st, 2024
Source: Interactive Brokers
The skew chart is also uncannily similar to GOOGL’s, though the “W” in the first week’s options is a bit less pronounced and the at-money volatility for weekly options is about 7% daily instead of 6%. As with GOOGL, that value is commensurate with the 6.96% average post-earnings more for the past six reports (+4.36%, -8.91%, -2.54%, +9.69, -7.02%, -9.22%)
Skews for AMD Options Expiring November 1st (light purple), November 8th (purple), November 15th (yellow)
Source: Interactive Brokers
Quite frankly, it is difficult to find a meaningful message in the options market pricing for both these companies. The implied volatilities are almost exactly where they should be, and the skews display neither risk aversion nor a bias toward a post-earnings rally. My takeaway is that the post-earnings trading will be almost completely reliant on each company’s results and more importantly, their guidance. That’s not a bad thing, but it also means that there is unfortunately little to be gleaned from options market pricing.
Disclosure: Interactive Brokers
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