These two Stocks typically experience significant fluctuations after the release of the Earnings Reports. Meanwhile, the overall USA stock market is struggling to find its footing.
With the start of a new earnings report season, the number of companies in the USA about to disclose their earnings reports will significantly increase. Among the companies set to announce their performance next week, $Tesla (TSLA.US)$and $Alphabet-A (GOOGL.US)$there are notable highlights. Both of these stocks may experience significant fluctuations after the earnings reports are released. The overall market is currently in a state of turmoil, which may also exacerbate the volatility of individual stocks.
And this week,$S&P 500 Index (.SPX.US)$Attempts to establish at least a tradable bottom. So far, most of the rebounds belong to oversold rebounds - just a short-term recovery, at most pulling the index back to near the 20-day moving average of the decline. After bottoming in the 4850-4950 range last week, the SPX had a strong rebound for one day but has since been searching for direction. This month, several trading days' intraday highs have fallen within the 5450-5500 range. This range is also where the 20-day moving average of the decline is located, forming a resistance level, and the SPX has not successfully broken through. Therefore, the technical chart of the SPX still leans bearish - highs and lows continue to shift downward, and the rebounds are also limited.
If the SPX can rise above 5800 points, it would represent a "change in the bullish pattern," but this requires first breaking through the currently downward-trending 200-day moving average.
On the day of the strong rebound on April 9, a "classic" improved Bollinger Band buy signal emerged, but Options strategist Lawrence G. McMillan stated that he would not operate solely based on this signal. His team prefers to wait for further confirmation of an increase before issuing the McMillan Volatility Band (MVB) buy signal. Currently, such a signal has not been triggered. If the SPX rises to 5575 points or above—breaking the current resistance area—then it can trigger the MVB buy signal.
The ratio of Put-Call options for stocks alone still shows divergence. The standard ratio continues to rise, thus maintaining a bearish stance on the stock market. Program analysis indicates that the probability of this ratio currently triggering a buy signal is only 37%, far below the 90% confidence level required by Lawrence's team. Meanwhile, the weighted Put-Call ratio peaked last week, and although this week's value has risen, that peak remains valid. Technically, this is a buy signal, but Lawrence's team will not overall assess it as bullish unless both ratios have peaked and begun to decline.
Market breadth improved this week but is still insufficient to trigger a buy signal for the "stocks only" breadth oscillators. The NYSE breadth oscillator has issued a buy signal. Similar to the Put-Call ratio situation, only when both trigger buy signals will Lawrence's team view the overall perspective as bullish. The "stocks only" oscillator remains in oversold territory but requires further recovery to confirm a buy signal.
The number of new lows on the NYSE continues to exceed new highs. Although the number of new lows has declined, this indicator still suggests a bearish outlook for the stock market. If the number of new highs on the NYSE exceeds the number of new lows for two consecutive days, this sell signal will be invalidated.
The VIX Index (Volatility Index) is currently still relatively high (close to 30), but it is far below the previous high of 60. The previously triggered 'peak Buy' signal is still effective, but the trend of the VIX itself remains bearish. This buy signal will 'expire' after 22 trading days, and if the VIX rises above 60.13 (the recent high), the signal will be invalidated. The sell signal previously issued at the end of February has seen related positions rolled down during the market decline.
The volatility derivatives structure still stubbornly holds a pessimistic view of the stock market. The VIX Futures and the Chicago Mercantile Exchange Volatility Index (VIX) both exhibit a downward sloping term structure. With the April VIX Futures nearing expiration, the May contract has become the current front month. The May contract is above June, which is unfavorable for the stock market.
Moreover, the current price of the VIX is higher than the three-month volatility index ( $Cboe S&P 500 3 Month Volatility Index (.VIX3M.US)$ ), which is also a negative signal. Eventually, these term structures will revert to a positive slope state, at which point a short-term buying signal for Stocks will be triggered. But this has not yet occurred.
The Lawrence team continues to maintain a 'core' short position, as the SPX chart is bearish. They will conduct peripheral trades based on confirmation signals. The key is to continue rolling deep in-the-money options, taking profits timely and accumulating margin.
Tesla and Alphabet are due for their Earnings Reports.
Tesla will report its Earnings Reports after the close of trading on April 22. The stock often sees uncertainty before earnings releases, which is not uncommon. In the last 10 Earnings Reports, the price fluctuated at least 11% the following day on 5 occasions. The pricing in the options market can be used to gauge market expectations. This time, just observe the at-the-money straddle (i.e., the at-the-money Call and Put options expiring on April 25) price. This combination was recently priced at about 11.2% of the stock price. If it can be bought at 11%, it is sufficient to constitute a speculative earnings trading opportunity.
Suggested strategy: As the trading day of April 22 approaches the close, buy Tesla's at-the-money Call and Put options expiring on April 25 (i.e., the straddle), with a total cost not exceeding 11% of the stock price.
Suggested strategy: On April 24th (Thursday), near the close, Buy $Alphabet-C (GOOG.US)$ The total cost of the at-the-money Call and Put Options combination expiring on April 25 should not exceed 7% of the stock price.
Trading strategy after Earnings Reports.
On the opening day after the Earnings Reports are announced:
Allow the Stocks to open with a gap and Trade for one hour. If the stock price has not exceeded the Range of the previous trading day after one hour, then Sell the Options combination to stop loss.
If during the session the stock price falls back into the opening gap Range, the Options combination should also be sold.
If neither of the above two situations occurs, then the combination should be sold before the market closes (there should be a profit by this time).
Potential oversold buying signal.
As mentioned above, the VIX (30-day volatility) is currently above the three-month VIX (VIX3M). This abnormal situation indicates that the market is oversold. Once it returns to normal (VIX below VIX3M), it constitutes an oversold buying signal.
Strategy: If the closing price of VIX is at least 0.50 points lower than VIX3M, then Buy 1 SPY (May 2) At-the-money Call Options, while simultaneously Selling 1 SPY Call Option with a strike price 15 points higher.
If this position is established, it should be held for 5 trading days before exiting. If SPY rises 10 points above your lower strike price, the entire spread can be shifted up while still using the contract that expires on May 2.
Potential MVB Buy signal.
A "classic" buy signal has appeared: SPX first broke below the -4σ modified Bollinger Band, then returned above the -3σ band. However, the Lawrence team is still waiting for further confirmation, which is the McMillan Volatility Band (MVB) buy signal.
Strategy: If SPX closes above 5575 points, then buy 1 SPY (June 20) at-the-money Call Options and sell 1 Call Option with a strike price 25 points higher.
This will be a medium-term signal. If triggered, the target will be the +4σ upper Bollinger Band. If SPX closes below -4σ again, then stop loss.
Subsequent operation instructions:
Unless otherwise specified, all stop losses are psychological stops.
The Lawrence team uses a "standard" rolling strategy for SPY vertical spreads: for long Calls or short Puts, when the symbol price touches the sell leg strike price, roll the overall position. Roll up for Call spreads and roll down for Put spreads, maintaining the same expiration date and strike price distance, unless otherwise specified.
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Risk Warning
Options are contracts that give the holder the right, but not the obligation, to buy or sell an asset at a fixed price on a specific date or at any time before that date. The price of options is influenced by various factors, including the current price of the underlying asset, the strike price, the expiration time, andImplied volatility。
Implied volatilityIt reflects the market's expectations of volatility for options in the near future, derived from the options BS pricing model. It is generally seen as an indicator of market sentiment. When investors expect greater volatility, they may be more willing to pay a higher price for options to help hedge risks, leading to higher.Implied volatility。
Traders and investors use.Implied volatilityTo assessOptions prices.The appeal lies in identifying potential mispricings and managing risk exposure.
Disclaimer
This content does not constitute any offer, solicitation, advice, opinion, or guarantee with respect to securities, financial products, or instruments. The risks of losses in buying and selling Options can be substantial. In several cases, the losses incurred may exceed the amount of initial margin deposited. Even if you set up backup instructions, such as "stop-loss" or "limit price" instructions, it may not avoid losses. Market conditions may render such instructions unexecutable. You may be required to deposit additional margin within a short period. If you fail to provide the required amount within the designated time, your open positions may be closed. However, you will still be responsible for any resulting shortfall in your account. Therefore, you should research and understand Options, and carefully consider whether such trading is suitable for you based on your financial situation and investment goals before trading. If you trade Options, you should be familiar with the procedures for exercising Options and the rights and obligations you have when exercising Options and upon their expiration.
Editor/Danial
