Market Expectations and Post-Earnings Price Behavior
We are seeing a clear pattern where even strong earnings reports are not enough to satisfy the market’s sky-high expectations for AI-related stocks. Both Broadcom and CrowdStrike beating estimates and then selling off confirms this trend. This tells us that upside is likely capped in the immediate aftermath of news events. With Broadcom, we note the high implied volatility heading into its upcoming earnings announcement. Current options pricing suggests a move of over 8%, a significant swing for a stock trading near $1,430. Given the market’s tendency to sell the news, we believe selling premium is the correct approach here. A strategy to consider is an iron condor or a simple bear call spread, positioned above the recent all-time highs. With the broader market volatility index, the VIX, holding steady below 15, this high implied volatility seems isolated to earnings. This allows us to collect rich premiums while defining our risk if the stock does manage to surge unexpectedly.Trading Opportunities Around Volatility and Support Levels
CrowdStrike offers a different opportunity now that its earnings have passed. We saw the expected post-announcement volatility crush, where the value of its options decreased sharply. The stock initially dipped below $310 despite beating revenue forecasts and posting 33% growth in annual recurring revenue. This dip towards its 50-day moving average, coupled with the now lower cost of options, presents a potential entry point. We can look to buy call options or establish bull put spreads below current support levels. This strategy bets that the initial negative reaction was overblown and the stock will revert to its longer-term upward trend. This phenomenon isn’t new; we saw similar reactions with Microsoft and Meta Platforms in previous quarters. Historically, even during the dot-com era, market leaders often faced sharp, short-term pullbacks when their stellar growth was merely in line with, or slightly above, very high expectations. Therefore, we should trade the volatility around these events rather than the directional outcome of the earnings report itself.Start trading now — click here to create your real VT Markets account.
