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Options Suggest Big Moves in Facebook, Apple, Alibaba Stock

Options Suggest Big Moves in Facebook, Apple, Alibaba Stock B3 CE518 techsw M 20181026145955



Stock investors stung by volatility this earnings season are betting that the tumult in technology shares will continue.

Options prices forecast a swing of 9.3% in Facebook shares in the days after the social-media company posts earnings on Tuesday after market close, data from Trade Alert shows. That is much bigger than the average move of 5.5% that Facebook has posted following its past eight quarterly releases, options data from Trade Alert show.

Facebook investors already have suffered this year as multiple controversies and fears over slowing growth have dogged the company. Its shares have slumped almost 20% in 2018, on track for their first down year ever.

Falling Facebook shares are part of a larger shift of investor sentiment souring on tech. After being the darling stock sector for years, technology names have roiled the broader market several times in 2018. Last week, they dragged benchmark indexes into negative territory for the year. The tech-heavy Nasdaq Composite tumbled 3.8% last week to enter a correction, while the benchmark S&P 500 slid 3.9%.

“The momentum that pulled everything up is pulling everything down” said Jeffrey Pavlik, chief investment officer of Pavlik Capital Management, who oversees options strategies.

Investors also are projecting a 6.2% one-day move after Apple’s earnings report on Thursday, which compares with the iPhone maker’s average swing of 3.8% in the past eight quarters. Investors also anticipate an 8.5% swing in Alibaba’s U.S.-listed shares after its report this week, compared with the average move of 2.8%, according to Trade Alert data Friday.

The estimates don’t indicate which direction shares might sway, just the magnitude of the move. The percentages are derived from an options trade known as a straddle, which entails buying both bullish and bearish contracts that can be exercised at the same price for the stock.

Some projections made by the options market have already largely come true. On Thursday afternoon, options investors priced in a 6.1% move in

Amazon.com
Inc.

shares, well above the stock’s historical average of 4.3%. The company after the market close on Thursday reported record profits but also noted slowing revenue growth. Its shares sank 7.8% Friday and declined again on Monday. Shares of technology companies dragged U.S. stocks lower to start the week.

Similarly,

Goldman Sachs Group
Inc.

analysts wrote in a Thursday note that investors looked worried about Google parent

Alphabet
Inc.’s

ahead of its quarterly earnings release. Traders were paying up more for bearish options relative to bullish options on the company’s stock, the analysts wrote.

Alphabet reported profits increased but on slightly slower growth in revenue. Its stock fell 1.8% on Friday.

Some companies have posted big gains rather than losses.

Twitter
Inc.

shares jumped 15.5% on Thursday—its biggest single-day increase in a year—after reporting earnings. Electric-car maker

Tesla
Inc.

rallied 9.1% on Thursday after its quarterly results, while

Netflix
Inc.

shares jumped 5% the day after its Oct. 16 report.

Write to Gunjan Banerji at [email protected]


Source : WSJ

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