To The Moon

$Advanced Micro Devices(AMD)$  

$Palantir Technologies Inc.(PLTR)$  

$AppLovin Corporation(APP)$  

That matters to anyone holding options through Tuesday's report. The one-day drop was bigger than the whole priced earnings move.

Here is how I read it, and how you can check the same thing on any stock.

WHY AMD FELL

The driver was the chip sector, not AMD's own news. The chip index fell 7.2% on the day, and its members repriced together.

Intel set it off. Its own release guided fourth-quarter revenue to $15.0B to $16.0B, against an LSEG consensus of $17.07B.

Intel closed down 28.6% on the day.

WHAT THE OPTIONS DID

So the options market read Friday as a sector move already in the price, not as news about AMD's quarter.

AMD closed Friday at $504.80. A ±8.8% move from there is a band of about $460 to $549.

One more check. Over its last eight reports, AMD's average next-day move was 8.8%. That is exactly what the options price now, so Friday's drop did not make them charge more for the print.

SAME PATTERN, DIFFERENT REASONS

Palantir and AppLovin show the same pattern. I am not saying chips caused their drops. Palantir is software and AppLovin is ad-tech.

Palantir fell 6.3% on Friday. Its options now price ±12.4%.

AppLovin fell 10.4%, and it is the counter-case.

Its options now price ±17.0%, the widest of the three. Here the options charge the most for the report.

THE METHOD: A RUN-IN SPLIT

This works on any stock with an earnings date.

1. Take its last eight reports.

2. For each one, measure the 5-day return going into the report-day close.

3. Split them into reports where the stock went in down and reports where it went in up.

4. Compare how often each group rose at the next day's close.

Across these three names that gives 24 cases. In the 8 that went in down, the stock rose the next day 6 times.

In the 16 that went in up, it rose 8 times. That is about half.

Treat this with care. The sample is tiny, these stocks often move together, and Palantir carries the result: it rose after all 3 of its down run-ins. Whether the pattern holds on other names is not measured.

THE DATED TEST

My test uses Friday's priced moves: at most one of the three closes outside its implied move on its reaction day.

Palantir reports on Monday 2 Nov after the US close, so it reacts on Tuesday 3 Nov. AMD reacts on Wednesday 4 Nov and AppLovin on Thursday 5 Nov.

Results land around 05:00 SGT on those mornings. I will score it either way, hit or miss.

WHAT YOU CAN DO WITH THIS

If you hold a short option through a report, compare the priced move after a big drop before the print with the stock's past reactions.

If they match, the premium is charging for the company's own news, not for the sector drop already in the price. Then compare it with the moves the stock has actually made after past reports.

When a stock drops hard days before its report, do you check what the options price against past reactions, or do you go by the chart alone?

Not a forecast.

Not advice. I may hold positions in the names mentioned.

Stop guessing. Start calculating.

Live to fight another day. 🤙

#options #tradingpsychology #riskmanagement #optionstrading