UBS's options setup for incoming big tech earnings
Tech firms are about to report their earnings. Here is how analysts from UBS prepared for this season as Fed just started its rate hike cycle.
$Apple (AAPL.US)$ - UBS IT analyst is Buy rated and his recent Evidence Lab survey particularly highlighted benefit from established services like Music, iCloud, and Warranty (1 in 3 iPhone are paid subscribers).
UBS Recommended Setup: The team decide to hedge those risks with 13-May $155/$150 put spreads that cost $0.85 (0.5%) for protection in a down 6-10% range and best-case expiration payouts of 6:1x. AAPL implied volatility is low vs. peers.
$Amazon (AMZN.US)$ - UBS Internet analyst is buy rated and sees it as a consensus Iong but growth/ margin expansion may be backloaded.
UBS Recommended Setup: the team like to own put spreads or outright puts ahead of earnings. AMZN 1m implied volatility is above average but not extreme as of now.
$Meta Platforms (FB.US)$ - UBS Internet analyst sees the potential for shares to rise if the 1Q call features any improvement in engagement data and/or commentary to that effect.
UBS Recommended Setup: the team like owning upside exposure in FB for 1Q22. Very high implied volatility favor owning FB 20-May $240/$250 call spreads for $1.95 (0.9%) for upside in a +10%-15% range and best-case expiration payouts of 5.1x.
$Alphabet-A (GOOGL.US)$ – UBS Internet analyst is buy rated and sees positive near term trends in (1) share gains continuing through 1H22; (2) scope for acceleratingrevenue growth at Google Cloud; and (3) GAAP valuation support, trading at 19x on 2023E GAAP P/E.
UBS Recommended Setup: the team believes the modest implied volatility set-up for 1Q earnings argue for long option positions.
$Microsoft (MSFT.US)$ – UBS Software analyst is buy rated with a $360 price target. He sees the stock as a share gainer in 2022 amid a mixed outlook given pull-forward of demand during the pandemic, particularly in 3Q20- 2Q21.
UBS Recommended Setup: the team is consider hedging risk of soft guidance. Option prices seem consistent with that as MSFT 1m implied volatility is low vs. peers, normalized skew (96th %ile) remains elevated and options imply a +7-3.2% move on earnings vs_ 8Q average realized moves of +7-2.6%.
$Tesla (TSLA.US)$ - UBS Autos analyst is neutral rated but recently raised both his earnings estimates and price target to reflect the latest price increases and a 5% higher volume outlook.
UBS Recommended Setup: the team's options set-up for Tesla implies very bullish sentiment. TSLA 1m implied volatility is modestly above the 5-year average while skew is very low and options imply a +Z-5.2% move on earnings that is below the 8Q average realized move of +/-4%.
Options pricing through this document based on mid-market prices at 11-Apr close.
Disclaimer: Past performance can't guarantee future results. Investing involves risk and the potential to lose principal. This article is for information and illustrative purposes only.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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