Traders are betting that tech giants will crush earnings season - Foenaija - Home

Traders are betting that tech giants will crush earnings season

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  • A crucial stretch of tech earnings is coming up, with Amazon, Google, Microsoft, Facebook, and Apple set to report.
  • Despite shares sitting near record highs, traders are surprisingly light on downside hedges.


With tech stocks already trading near record highs, you'd think traders would be piling into hedges. You know, to protect against losses in the event of disappointing earnings ... just in case.

Think again.

Rather than play it safe, investors are electing to enter a crucial period of tech earnings relatively unhedged. The coming stretch includes reports for Amazon, Google, and Microsoft on Thursday followed by Facebook and Apple next week.

The lack of downside protection being purchased is surprising when you consider how fully valued the stock market looks to be, particularly from a tech perspective. The tech-heavy Nasdaq 100 index is up 25% year-to-date, having hit a record last week, while its price-earnings ratio is its highest since the dot-com bubble.

It's possible that traders are simply so bullish on the prospect of strong tech earnings that they don't want to dilute their potential upside by paying for hedges that end up being unnecessary. After all, mega-cap tech stocks have made a habit out of spiking after strong earnings reports.

Traders are paying the lowest premium in almost five months to protect against a 10% decline in the PowerShares QQQ Trust ETF, relative to wagers on a 10% increase, according to data compiled by Bloomberg. That's a bullish signal for the fund, which tracks the Nasdaq 100 and is one of the most heavily traded exchange-traded funds in the US market.

QQQ 3 month skewBusiness Insider / Joe Ciolli, data from Bloomberg

A similar unhedged dynamic is in play in the SPDR Technology Select Sector ETF, which tracks technology companies in the S&P 500 index. The ratio of put contracts — frequently bought as a hedge against share losses — to bullish calls is the lowest since February, another bullish sign for tech stocks.

XLK put call ratioBusiness Insider / Joe Ciolli, data from Bloomberg

To help you prepare for the tech-heavy portion of earnings season, here's a rundown of the recent stock performance for the companies set to report:

  • Amazon (October 26) — year-t0-date return: +30%
  • Google (October 26) — YTD return: +25%
  • Microsoft (October 26) — YTD return: +27%
  • Facebook (November 1) — YTD return: +49%
  • Apple (November 2) — YTD return: +36%

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