Historic stock rally faces key test
The S&P 500 has gained nearly 20% in the last nine weeks; This is a historic rise that would put even the most optimistic investors to shame. While the nine-day winning streak looks at risk, two major tech companies reporting earnings after the bell could determine whether the next move will be higher or lower: broadcomchipmaking giant that also acts as a software provider and crowd strikeA cybersecurity leader who helped pull cloud stocks out of a bear market.
At over $2 trillion, Broadcom is now larger than two of the “Magnificent Seven” stocks and is up just 40% year-to-date, far outperforming its mega-cap peers in the S&P 500’s top 10 stocks. This brings its 1-year rise to 88% compared to 29% in the previous year. Mag-7 ETF (MAGS).
Based on the move implied by options, investors are bracing for an 8% rise in AVGO following earnings. That’s about the norm for the stock, which has moved an average of 9.9% after earnings over the past two years, according to Cboe LiveVol data.
Broadcom and Crowdstrike, YTD
Call volume was nearly two-to-one on Broadcom on Wednesday, according to SpotGamma; Call sales and puts were on par, with calls accounting for more than $400 million of the total $520 million in option premium traded. 18 of the top 20 contracts by volume expire on Friday. As of this writing, the most popular in terms of volume and dollar amount is the 500 strike call.
Option volumes are much lower on Crowdstrike and flows show no obvious trend in either direction. Still, pressure remains on the cybersecurity stock, which has more than doubled in price from March lows and now trades at a market cap of almost $200 billion; That lags slightly behind Palo Alto Networks, which fell 6.5% today despite Tuesday’s earnings report that beat most analysts’ estimates.
Crowdstrike traders are also preparing for an 8% move; This is considerably steeper than the average swing of 4.6% in the last two annual reports. The actual movement in the stock’s earnings has underperformed the implied movement over the last 7 quarters.
