MW This Tesla and Alphabet earnings play could profit from stock-market volatility

By Lawrence G. McMillan

Both of these stocks often see big postearnings moves. Meanwhile, the broader U.S. market is struggling to find its footing.

The number of U.S. stocks reporting earnings is about to balloon, as a new round of companies reporting quarterly results begins. Some interesting reports coming up next week include Tesla and Alphabet. Both stocks have the potential to be a large mover postearnings. With the overall market being volatile, that might also contribute to volatility in individual stocks.

This week, meanwhile, the S&P 500 index SPX is trying to establish at least a trading bottom. So far, rallies have merely been of the oversold variety - short-term bursts which only carry the benchmark index back to about the declining 20-day moving average. After bottoming in the 4,850-4,950 area last week, SPX rallied strongly one day and has been trying to find its direction ever since. There have been several days so far this month where the daily high has been in the 5,450-5,500 area. The declining moving average is in that range as well. That represents resistance, and SPX has not been able to overcome it. So, the SPX chart remains negative in that lower highs and lower lows are in evidence, while rallies have been limited.

If SPX were to rise above 5,800, that would be a bullish game changer, but it would have to overcome the now-declining 200-day moving average $(MA)$ in order to do that.

A "classic" modified Bollinger band buy signal was generated on the day of the huge rally (April 9), but we don't trade those. Rather, we wait for confirmation from a further rise, in order to generate a McMillan Volatility Band $(MVB.AU)$ buy signal. That has not occurred. That MVB buy signal would occur if SPX were to trade at 5,575 or higher - above the current resistance area.

Equity-only put-call ratios remain split. The standard ratio continues to rise and thus remains bearish for stocks. The computer analysis programs only give this a 37% chance of creating a buy signal at current levels - far below the 90% confidence level that we require in order to say that a buy signal has been confirmed. Meanwhile, the weighted put-call ratio peaked last week, and that peak is still in place despite the ratio climbing higher this week. That is technically a buy signal, but we won't rate this overall indicator as bullish until both ratios have peaked and are moving lower.

Market breadth has improved this week, but not enough to generate a buy signal from the "stocks only" breadth oscillator. The NYSE-based oscillator has generated a buy signal. Similar to the put-call ratios, we won't grade this overall indicator as bullish until both oscillators generate buy signals. For now, the "stocks only" oscillator remains in oversold territory, but it needs to gain more ground in order to generate a confirmed buy signal.

New lows on the NYSE continue to outnumber new highs, although the total number of new lows has fallen. Even so, this indicator remains bearish for stocks. This sell signal would be stopped out if new highs were to outnumber new lows for two consecutive days on the NYSE.

VIX VIX has remained relatively high (near 30) but is well off its most recent highs at 60. The "spike peak" buy signal remains in effect but so does the trend of VIX sell signal. The buy signal will "expire" after 22 trading days and would be stopped out if VIX were to rise back above 60.13 (the most recent peak). Positions in line with that sell signal - which was generated in late February (circle on chart) - were rolled down to lower strikes when the market was falling.

The construct of volatility derivatives has remained stubbornly negative in its outlook for stocks. The term structures of both the VIX futures and of the Cboe Volatility Index slope downward. The April VIX futures have expired, so May is now the front month. May is trading above June, and that is a negative factor for stocks.

In addition, VIX is trading above the three-month volatility index (VIX3M) and that is also a negative. Eventually, these term structures will revert to an upward-sloping status, and that will generate at least a short-term buy signal for the stock market. But it hasn't happened yet.

In summary, we are retaining a "core" bearish position, because of the negativity of the SPX chart. We will trade confirmed signals around that position. Most importantly, continue to roll deeply in-the-money options to take partial profits and generate credits along the way.

Tesla and Alphabet earnings next week

Tesla $(TSLA)$ earnings are going to be reported after the market close on April 22. There is a great deal of uncertainty for this stock going into this earnings report, which is not uncommon. In five of the past 10 reporting periods, TSLA stock has moved at least 11% the next day. The options market can be used to gauge what traders think is going to happen this time. One merely looks at the price of the near-term straddle (at-the-money put and call expiring on April 25 - after the earnings). That straddle recently was selling for 11.2% of the stock price. If it can be bought for 11%, that would be enough to justify a speculative play on the earnings.

Late in the trading day on Tuesday, April 22, buy the TSLA at-the-money put and call (straddle) expiring on April 25. The total straddle price should be no more than 11% of the stock price.

The accompanying chart of TSLA shows the stock price on the lower half and the implied volatility on the upper half. Note the "spikiness" of the implied volatility. Those are the option traders bidding up the price of the straddle just prior to the earnings, as they expect a volatile move.

A similar situation exists in Alphabet $(GOOG)$ $(GOOGL)$, where five of the past 10 postearnings moves have been at least 7% of the stock price. GOOG is slated to report earnings on April 24 after the close.

Late in the day on Thursday, April 24, buy the GOOG at-the-money put and call (straddle) expiring on April 25, for a total price that is no more than 7% of the stock price.

The accompanying chart of GOOG and its implied volatility shows the "spikiness" that we like to see in these stocks prior to earnings.

Here's how to trade these stocks after the earnings announcement. The following day at the open:

Let the stock gap and trade for an hour. If it has not exceeded the previous day's trading range by that time, then sell the straddle and take the loss.

Otherwise, if the stock trades back into its opening gap at any time during the day then sell the straddle.

Finally, if neither of these two conditions have occurred, then sell the (hopefully profitable) straddle just before the close of trading.

Potential oversold buy signal

As noted above, VIX (a 30-day volatility measure) has been trading higher than the three-month VIX (VIX3M). This is an unusual situation that means the market is oversold. When this reverts to "normal," with VIX back below VIX3M, then that is an oversold buy signal for stocks.

If VIX closes at least 0.50 below VIX3M, then buy 1 SPY (May 2) at-the-money call and sell 1 SPY (May 2) call with a striking price 15 points higher.

If the position is established, it should be held for five trading days and then exited. Roll both sides of the spread up if SPY SPY rises to 10 points above your lower strike, remaining in the May 2 expiration.

Potential MVB buy signal

A "classic" buy signal has occurred because SPX first closed below the -4<SIGMA> "modified Bollinger band," and then close above the -3<SIGMA> band. We don't trade those, preferring to wait for further price confirmation in the form of a McMillan Volatility Band (MVB) buy signal.

If SPX closes above 5,575, then buy 1 SPY (June 20) at-the-money call and sell 1 SPY (June 20) call with a striking price 25 points higher.

This is an intermediate-term buy signal. If it takes place, then the target would be the upper +4<SIGMA> band. The trade would be stopped out if SPX retreats and once again closes below the -4<SIGMA> band.

Follow-up actions:

All stops are mental closing stops unless otherwise noted.

We are using a "standard" rolling procedure for our SPY spreads: in any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 1 SPY (April 17) 482 put: We originally bought a straddle, and then later rolled the put down repeatedly according to the above instructions until it landed in the put shown (482 strike) on April 7. Now, because the environment is still bearish, roll to the SPY (May 9) 480 put. Hold without a stop.

Long 10 WEAT (April 17) 5 calls: Even though the put-call ratio buy signal is still in place, we are not going to roll these WEAT WEAT calls. Sell them if you can.

Long 2 APH (April 17) 65 calls: Roll to the APH $(APH)$ (May 16) 65 calls now. We will hold as long as the weighted put-call ratio for APH remains on a buy signal.

Long 8 IEF IEF (May 16) 94 puts: We will hold this position as long as the weighted put-call ratio for U.S. Treasury notes remains on a sell signal.

Long 1 SPY (June 20) 485 put and Short 1 SPY (June 20) 435 put: This is the "core" bearish position, bought near the close of April 3, when SPX was below 5,480. It was rolled down once. Stop out of this position if SPX were to reverse and close above 5,700.

Long 1 SPY (May 2) 485 put and short 1 SPY (May 2) 455: This is based on the "new highs vs. new lows" sell signal. It has been rolled down several times. Hold until new highs outnumber new lows on the NYSE for two consecutive days. That is not going to happen anytime soon.

MW This Tesla and Alphabet earnings play could profit from stock-market volatility

By Lawrence G. McMillan

Both of these stocks often see big postearnings moves. Meanwhile, the broader U.S. market is struggling to find its footing.

The number of U.S. stocks reporting earnings is about to balloon, as a new round of companies reporting quarterly results begins. Some interesting reports coming up next week include Tesla and Alphabet. Both stocks have the potential to be a large mover postearnings. With the overall market being volatile, that might also contribute to volatility in individual stocks.

This week, meanwhile, the S&P 500 index SPX is trying to establish at least a trading bottom. So far, rallies have merely been of the oversold variety - short-term bursts which only carry the benchmark index back to about the declining 20-day moving average. After bottoming in the 4,850-4,950 area last week, SPX rallied strongly one day and has been trying to find its direction ever since. There have been several days so far this month where the daily high has been in the 5,450-5,500 area. The declining moving average is in that range as well. That represents resistance, and SPX has not been able to overcome it. So, the SPX chart remains negative in that lower highs and lower lows are in evidence, while rallies have been limited.

If SPX were to rise above 5,800, that would be a bullish game changer, but it would have to overcome the now-declining 200-day moving average (MA) in order to do that.

A "classic" modified Bollinger band buy signal was generated on the day of the huge rally (April 9), but we don't trade those. Rather, we wait for confirmation from a further rise, in order to generate a McMillan Volatility Band (MVB) buy signal. That has not occurred. That MVB buy signal would occur if SPX were to trade at 5,575 or higher - above the current resistance area.

Equity-only put-call ratios remain split. The standard ratio continues to rise and thus remains bearish for stocks. The computer analysis programs only give this a 37% chance of creating a buy signal at current levels - far below the 90% confidence level that we require in order to say that a buy signal has been confirmed. Meanwhile, the weighted put-call ratio peaked last week, and that peak is still in place despite the ratio climbing higher this week. That is technically a buy signal, but we won't rate this overall indicator as bullish until both ratios have peaked and are moving lower.

Market breadth has improved this week, but not enough to generate a buy signal from the "stocks only" breadth oscillator. The NYSE-based oscillator has generated a buy signal. Similar to the put-call ratios, we won't grade this overall indicator as bullish until both oscillators generate buy signals. For now, the "stocks only" oscillator remains in oversold territory, but it needs to gain more ground in order to generate a confirmed buy signal.

New lows on the NYSE continue to outnumber new highs, although the total number of new lows has fallen. Even so, this indicator remains bearish for stocks. This sell signal would be stopped out if new highs were to outnumber new lows for two consecutive days on the NYSE.

VIX VIX has remained relatively high (near 30) but is well off its most recent highs at 60. The "spike peak" buy signal remains in effect but so does the trend of VIX sell signal. The buy signal will "expire" after 22 trading days and would be stopped out if VIX were to rise back above 60.13 (the most recent peak). Positions in line with that sell signal - which was generated in late February (circle on chart) - were rolled down to lower strikes when the market was falling.

The construct of volatility derivatives has remained stubbornly negative in its outlook for stocks. The term structures of both the VIX futures and of the Cboe Volatility Index slope downward. The April VIX futures have expired, so May is now the front month. May is trading above June, and that is a negative factor for stocks.

In addition, VIX is trading above the three-month volatility index (VIX3M) and that is also a negative. Eventually, these term structures will revert to an upward-sloping status, and that will generate at least a short-term buy signal for the stock market. But it hasn't happened yet.

In summary, we are retaining a "core" bearish position, because of the negativity of the SPX chart. We will trade confirmed signals around that position. Most importantly, continue to roll deeply in-the-money options to take partial profits and generate credits along the way.

Tesla and Alphabet earnings next week

Tesla $(TSLA.UK)$ earnings are going to be reported after the market close on April 22. There is a great deal of uncertainty for this stock going into this earnings report, which is not uncommon. In five of the past 10 reporting periods, TSLA stock has moved at least 11% the next day. The options market can be used to gauge what traders think is going to happen this time. One merely looks at the price of the near-term straddle (at-the-money put and call expiring on April 25 - after the earnings). That straddle recently was selling for 11.2% of the stock price. If it can be bought for 11%, that would be enough to justify a speculative play on the earnings.

Late in the trading day on Tuesday, April 22, buy the TSLA at-the-money put and call (straddle) expiring on April 25. The total straddle price should be no more than 11% of the stock price.

The accompanying chart of TSLA shows the stock price on the lower half and the implied volatility on the upper half. Note the "spikiness" of the implied volatility. Those are the option traders bidding up the price of the straddle just prior to the earnings, as they expect a volatile move.

A similar situation exists in Alphabet $(GOOG.UK)$ (GOOGL), where five of the past 10 postearnings moves have been at least 7% of the stock price. GOOG is slated to report earnings on April 24 after the close.

Late in the day on Thursday, April 24, buy the GOOG at-the-money put and call (straddle) expiring on April 25, for a total price that is no more than 7% of the stock price.

The accompanying chart of GOOG and its implied volatility shows the "spikiness" that we like to see in these stocks prior to earnings.

Here's how to trade these stocks after the earnings announcement. The following day at the open:

Let the stock gap and trade for an hour. If it has not exceeded the previous day's trading range by that time, then sell the straddle and take the loss.

Otherwise, if the stock trades back into its opening gap at any time during the day then sell the straddle.

Finally, if neither of these two conditions have occurred, then sell the (hopefully profitable) straddle just before the close of trading.

Potential oversold buy signal

As noted above, VIX (a 30-day volatility measure) has been trading higher than the three-month VIX (VIX3M). This is an unusual situation that means the market is oversold. When this reverts to "normal," with VIX back below VIX3M, then that is an oversold buy signal for stocks.

If VIX closes at least 0.50 below VIX3M, then buy 1 SPY (May 2) at-the-money call and sell 1 SPY (May 2) call with a striking price 15 points higher.

If the position is established, it should be held for five trading days and then exited. Roll both sides of the spread up if SPY SPY rises to 10 points above your lower strike, remaining in the May 2 expiration.

Potential MVB buy signal

A "classic" buy signal has occurred because SPX first closed below the -4<SIGMA> "modified Bollinger band," and then close above the -3<SIGMA> band. We don't trade those, preferring to wait for further price confirmation in the form of a McMillan Volatility Band (MVB) buy signal.

If SPX closes above 5,575, then buy 1 SPY (June 20) at-the-money call and sell 1 SPY (June 20) call with a striking price 25 points higher.

This is an intermediate-term buy signal. If it takes place, then the target would be the upper +4<SIGMA> band. The trade would be stopped out if SPX retreats and once again closes below the -4<SIGMA> band.

Follow-up actions:

All stops are mental closing stops unless otherwise noted.

We are using a "standard" rolling procedure for our SPY spreads: in any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 1 SPY (April 17) 482 put: We originally bought a straddle, and then later rolled the put down repeatedly according to the above instructions until it landed in the put shown (482 strike) on April 7. Now, because the environment is still bearish, roll to the SPY (May 9) 480 put. Hold without a stop.

Long 10 WEAT (April 17) 5 calls: Even though the put-call ratio buy signal is still in place, we are not going to roll these WEAT WEAT calls. Sell them if you can.

Long 2 APH (April 17) 65 calls: Roll to the APH $(APH.UK)$ (May 16) 65 calls now. We will hold as long as the weighted put-call ratio for APH remains on a buy signal.

Long 8 IEF IEF (May 16) 94 puts: We will hold this position as long as the weighted put-call ratio for U.S. Treasury notes remains on a sell signal.

Long 1 SPY (June 20) 485 put and Short 1 SPY (June 20) 435 put: This is the "core" bearish position, bought near the close of April 3, when SPX was below 5,480. It was rolled down once. Stop out of this position if SPX were to reverse and close above 5,700.

Long 1 SPY (May 2) 485 put and short 1 SPY (May 2) 455: This is based on the "new highs vs. new lows" sell signal. It has been rolled down several times. Hold until new highs outnumber new lows on the NYSE for two consecutive days. That is not going to happen anytime soon.

(MORE TO FOLLOW) Dow Jones Newswires

April 17, 2025 14:42 ET (18:42 GMT)

MW This Tesla and Alphabet earnings play could -2-

Long SPY (May 16) 534 call and short 1 SPY (May 16) 564 call: This is the VIX "spike peak" buy signal. It was rolled up once. This position will be held for 22 trading days. However, it would be stopped out if VIX were to close above its most recent peak of 60.13.

Long 1 TSEM $(TSEM)$ (July 18) 34 call and long 1 TSEM (July 18) 34 put: Plan to roll either option if it becomes at least eight points in-the-money. For example, if TSEM trades up to $42, then roll to the TSEM (July 18) 42 call. Similarly, roll down if TSEM trades at $26. We will not carry this to expiration, as we will stop ourselves out if the straddle price falls below $4.

All stops are mental closing stops unless otherwise noted.

Send questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of "Options as a Strategic Investment." www.optionstrategist.com

(c)McMillan Analysis Corporation is registered with the SEC as an investment advisor and with the CFTC as a commodity trading advisor. The information in this newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corporation, or accounts managed by such persons may have positions in the securities recommended in the advisory.

-Lawrence G. McMillan

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(END) Dow Jones Newswires

April 17, 2025 14:42 ET (18:42 GMT)

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