JPMorgan analysts who cover $Amazon(AMZN)$ and $Meta(META)$ are optimistic on the results these two hyperscalers will report this week, and Bram Kaplan, head of America equity derivatives strategy, has mapped out a similar approach to position for upside in both stocks.
Amazon is JPMorgan’s top pick among internet stocks for this earnings season, and both the Jassy-led and Zuckerberg-led companies are rated as “overweight” by the bank, in part because of tax benefits thanks to the OBBBA. The former reports on Thursday after the close, while the latter is slated to deliver results on Wednesday postmarket.
Kaplan’s tactic is to position for strength — but not too much strength — from both stocks as investors react to the quarterly figures. His recommendations:
Buy the Amazon $235 strike call that expires this Friday while selling the $245 strike;
$AMZN Vertical 251031 235.0C/245.0C$
Buy the Meta $780 strike call that expires this Friday while selling the $805 strike.
$META Vertical 251031 780.0C/805.0C$
Both are call spread trades, but there’s a bit of a different rationale for why in each company.
Skew on Amazon is fairly flat, per Kaplan. That is, there’s not too big of a difference between the implied volatility of close-to-the-money call options and those that are further out of the money, making call spreads relatively cost-efficient. In the case of Meta, Kaplan says that earnings volatility is “cheap,” with the options market implying a move of plus or minus 6.1% coming into this week, versus an average one-day reaction of plus or minus 7.5% going back to Q3 2014. However, it’s a very well owned stock, he noted, which could cause a more muted reaction even in the event of strong results.
JPM Meta AMZN
Other Option Strategies to Consider:
J.P. Morgan’s option strategies on Amazon and Meta are bullish, expecting both stocks to rise by over 5%.
However, if Amazon and Meta shares remain flat or dip slightly after their earnings releases, what kind of option strategy could be considered? The following suggestions may serve as a reference:
$Amazon(AMZN)$
Sell one Amazon put option with a $200 strike price expiring this Friday (Oct 31)
Buy one Amazon put option with a $190 strike price expiring the same day
$AMZN Vertical 251031 190.0P/200.0P$
Source: Tiger Trade App
Strategy assumption: Amazon’s share price will stay above $200 before this Friday, implying an 11.88% downside buffer.
$Meta(META)$
Sell one Meta put option with a $700 strike price expiring this Friday (Oct 31)
Buy one Meta put option with a $690 strike price expiring the same day
$META Vertical 251031 690.0P/700.0P$
Source: Tiger Trade App
Strategy assumption: Meta’s share price will stay above $700 before this Friday, implying a 6.77% downside buffer.
Disclaimer: Options trading involves high risk. Investors should make prudent decisions based on their own risk tolerance.
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