Michael Kramer and the clients of Mott Capital own Microsoft, Apple, and Tesla
It will be a massive week for the markets, with trade negotiations, significant earnings reports, and of course the Fed meeting –with a presser. That means up to 2 hours of Jay Powell up there on stage taking questions, talking off the cuff, and saying whatever comes to mind. Hopefully, he will use a sheet with some notes again on things to say and not mention, like when he was with Bernanke and Yellen a couple of weeks ago.
Things to say:
Sounds easy enough, let’s hope he sticks, to the script, and we don’t have a repeat of the last meeting in December.
Then, of course, we have HUGE earnings this week from Apple, AMD, Facebook, Microsoft, Tesla, and Amazon. Here are some prediction –so keep score at home.
For Apple, it will be about any color on how the iPhone is doing and of course quarterly guidance. The options market isn’t pricing in a big move for Apple after the result. The long straddle for expiration on February 15 suggests that the stock rises or falls about 6.5% from the $157.50 strike price. It places the stock in a trading range between $147.50 and $167.50. It would at least suggest to me that much of the bad news has been priced already.
The put to call ratio at the $160 strike is overwhelming bullish with 27,000 open calls to just 11,500 puts. Open interest at the $160 strike price has been steadily building over the past few weeks.
The chart signals that perhaps investors are betting that guidance next quarter isn’t as bad. We can see that stock has lifted meaningfully off the lows. Additionally, the relative strength index has started to trend nicely higher. I think the stock may even be trading north of $165 following results.
AMD, however, is expected to see a huge price swing following results. The long straddle shows that options are pricing in a rise or fall of nearly 16% by expiration on February 15 from the $22 strike price. That places the stock in a massive trading range of $18.55 to $25.45 by expiration.
The call options outweigh the put options for AMD, with over 12,000 open calls to just 4,500 open puts. The open interest on the calls has been steadily rising in recent weeks.
The stock already cleared a key resistance level around $21 last week, and now there is a path for it rise towards $24. The RSI appears to be breaking out too, and that would suggest bullish momentum will likely push this stock higher following results.
Facebook is expected to see its stock rise or fall by 8% from the $150 strike place. It places the stock in a trading range between $137.75 and $162.25 by expiration on February 15. The call options outweigh the puts at the $150 strike price, with 20,000 open calls to 12,500 open puts. The open calls have been steadily rising, and according to data from Trade Alert a good part of that increase in mid-January was due to options being bought.
The chart does look bullish and would suggest it could rise to around $157.
Expectations for earnings have fallen from $2.45 per share in July to $2.17 now. Facebook has also topped analysts earnings expectation eight quarters in a row.
Given the water down expectations, its history of beating estimates, option betting, and a bullish chart, I think this will find itself around $157 not to long after results.
Microsoft is expected to rise or fall just 5.5% from the $107 strike price and maybe the least exciting of all the companies to report results. It places the stock in a trading range between $101 and $113 by expiration on February 15. There is no strong bias for the stock’s direction following results.
Unlike the other stocks, Microsoft has traded sideways over the past few months, and it makes calling the direction of the stock tricky. If the stock can clear $110, I think it goes on to a new all-time high. If not that probably just stays in this range for a while longer.
Amazon may be in for a wild ride after it reports result rising or falling by as much as 8% from the 1,670 strike price. It places the stock in a range of $1,540 to $1,800 by expiration February 15. There are 600 open call contracts at the $1,670 strike price which doesn’t like much, but consider the contracts trade for roughly $65 each, and that means the open interest is worth about $3.9 million. Not sounding so small now?
The company has missed revenue expectations two quarters in a row, so the market likely won’t take kindly should they miss for the third time. I think the stock is range bound for now, with upside to around $1,770.
Then there is Tesla, with options market suggesting that stock rise or fall by as much as 14% from the $295 strike price. It places the stock in a trading range of $253 to $337 by options expiration on February 15.
Everybody has already assumed the worse, with the stock down a stunning 15% since January 17. Could it be worse? Anything is possible when it comes to Tesla. But the stock has held strong around $300, and I think it bounces back towards that $335 price again.
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