MW Netflix, big banks face a moment of truth as the Iran cease-fire rally meets earnings season
By Lawrence G. McMillan
'Sawtooth' volatility pattern in options prices suggests a strong postearnings move for Netflix
Earnings season is getting started. Next week will see reporting from the big U.S. banks - including Bank of America (BAC), Goldman Sachs $(GS)$, JPMorgan Chase $(JPM)$, Morgan Stanley $(MS)$ and Wells Fargo (WFC.) Other notables include Netflix $(NFLX)$ and Johnson & Johnson $(JNJ)$. The ones that we look for as earnings "surprises" have a unique pattern of implied volatility heading into the earnings.
The Netflix two-year chart below has two graphs. The bottom graph shows the stock price, while implied volatility is on the upper graph. One can see that the stock's implied volatility increases into a spike and then plunges, creating a sawtooth pattern. In other words, implied volatility increases as the earnings date approaches and plunges after the earnings are announced.
This is actually something of an optical illusion, for the options are not getting more expensive in terms of price as the earnings date approaches. That is, the option trading "universe" prices the straddle prior to the earnings and essentially keeps it at that price until the earnings are announced.
An option that doesn't lose value to time decay (which these don't over the couple of weeks heading into the earnings) thus has the appearance of increasing implied volatility. Such stocks display this sawtooth pattern surrounding past earnings dates.
The table below shows the stocks reporting earnings next week. This list normally is comprised of stocks whose options have increased implied volatility. That is, the option market is expecting a potentially volatile move after the earnings news.
Our approach is to attempt to buy the shortest-term straddle possible (generally the one expiring on the Friday after the earnings reporting date) and to exit at the close of the first full day of trading after the earnings have been reported. For the stock listed in this table, that would mean buying the straddles expiring on April 17.
Specifically, the columns below (from left to right) are:
Date: The earnings reporting date.
PM?: Whether the earnings are to be reported before the market opens ("N") or after the market closes ("Y").
Symbol: The stock symbol.
Needed: The most that we would pay for that near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price. In reality, this is the percentage move that is smaller than six of the past ten post-earnings moves in this stock.
Optvol: the 20-day average of total option volume on this stock. Low numbers here indicate a potentially illiquid situation.
Date PM? Symbol Needed Optvol 4/13/26 N GS 1.92% 22,593 4/14/26 N JNJ 1.91% 14,932 4/14/26 N JPM 1.91% 59,653 4/14/26 N WFC 4.60% 46,479 4/15/26 N BAC 2.33% 128,530 4/15/26 N MS 4.02% 16,242 4/16/26 N ABT 2.86% 9,387 4/16/26 Y NFLX 9.09% 246,868
NFLX shows the "count" as 9.09%. That means if we can buy the April 17 at-the-money straddle for 9.09% of the stock price or less, we should. If this price materializes, we would buy the at-the-money straddle at the close of trading on April 16, just before the earnings are announced. Then, that straddle would be exited the next day.
New buy signals
The S&P 500 Index (SPX) SPX has rebounded from the 6,300 level on March 30. That oversold rally ran into resistance just above 6,600. Then, on the basis of the cease-fire in Iran, SPX soared on April 8. This has improved several of our market indicators. Yet it still doesn't feel quite right to chase the index higher after upside day, so we may use some caution in implementing new buy signals.
The big jump in SPX leaves a gap all the way down to the low 6,600's - the resistance area that was cleared out by the monster rally. On Thursday, SPX also broke through resistance at the high of April 8 (6,793). There should be support in the general neighborhood of 6,600.
The McMillan Volatility Band (MVB) buy signal from last week remains in effect. Its target is the upper +4<SIGMA> "modified Bolinger band" (mBB). That band currently is at 6,925 but has curled upward and is moving higher as SPX rallies.
Equity-only put-call ratios are now both on buy signals. The weighted ratio's signal appears to be stronger, but both ratios have turned downward, and the computer analysis programs are calling buy signals for both.
Market breadth oscillators are now on buy signals also. It was a bit surprising that April 8 wasn't a 90% up day, but those have been rare in recent months.
New highs numbered more than 100 on the NYSE on April 8 and also outnumbered new lows. Two days in a row of this and the signal will flip from sell to buy. Even if new highs outnumber new lows (but don't reach at least 100) that will stop out the previous sell signal.
VIX VIX dropped, but it is still at a relatively high level (just below 20). So the trend of VIX sell signal is still in effect. It won't be stopped out unless VIX closes below its 200-day Moving Average, which is currently at 18 and rising slowly.
We've been more concerned with the construct of volatility derivatives. If this turns bullish, then that would be a better "all-clear" for stocks. It has improved, but I can't say it's strongly bullish. The VIX futures term structure is barely rising, but it is rising. But the Cboe volatility index term structure is rising, and so is more bullish. Finally, VIX futures are trading at small premiums to VIX; this is mildly bullish.
All considered, we are adding long positions. SPX rising on April 9 is strongly positive. If the index breaks out to new all-time highs, all will be forgiven.
New recommendation: New highs vs. new lows potential buy signal
If new highs on the NYSE number at least 100, and new highs outnumber new lows - Buy 1 SPY (May 15) at-the-money call and sell 1 SPY (May 15) call with a striking price 25 points higher.
If this buy signal is confirmed, then we will hold the position until new lows on the NYSE outnumber new highs for two consecutive days.
New recommendation: put-call ratio conditional buy signal
Both equity-only put-call ratios (as well as both breadth oscillators) are now on buy signals. We are going to take a new long position if SPX can prove that the big rally on April 8 has follow-through.
SPX closed above 6,800 on Thursday. Buy 1 SPY SPY (May 15) at-the-money call and sell 1 SPY (May 15) call with a striking price 25 points higher.
Follow-up action:
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 TSEM (May 15) 205 call and short 1 TSEM (May 15) 220 call: The position was rolled up, 15 points on each side, when TSEM $(TSEM)$ traded above $205 on April 8. Roll up and out both sides, 15 points each, if TSEM trades at $205.
Long 1 BKR (BKR )(July 17) 65 call and long 1 BKR (July 17) 60 put: Roll the call up at $75 and roll the put down at $50.
Long 2 ARKK (Apr. 17) 74 calls: We will hold the calls as long as the weighted put-call ratio for ARKK ARKK remains on a buy signal.
Long 0 SPY (Apr. 17) 666 puts and short 0 SPY (Apr 17) 615: This position was stopped out on April 7 when SPX closed above 6,615.
Long 2 KMX (Apr. 17) 42.5 puts: We will hold as long as the weighted put-call ratio for KMX $(KMX)$ remains on a sell signal.
Long 1 SFL (Aug. 21) 10 straddle: Roll the calls up if SFL $(SFL)$ trades at $13, and roll the puts down if SFL trades at $7.
Long 1 SPY (May 1) 655 call and short 1 SPY (May 1) 680 call: This position is based on the MVB buy signal. It has a target of SPX trading at the +4<SIGMA> band. It would be stopped out if SPX were to close back below the -4<SIGMA> band.
Long 3 HRB (Apr. 17) 30 calls: these calls were bought when HRB $(HRB)$ closed above $32.50 on April 6. We will hold as long as the weighted put-call ratio for HRB remains on a buy signal.
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 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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April 09, 2026 17:59 ET (21:59 GMT)
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