JPMorgan recommends bullish options bets on Amazon and Meta ahead of earnings this week
JPMorgan analysts who cover Amazon and Meta are optimistic on the results these two hyperscalers will report this week, and Bram Kaplan, head of America equity derivatives strategy, has mapped out a similar approach to position for upside in both stocks.
Amazon is JPMorgan’s top pick among internet stocks for this earnings season, and both the Jassy-led and Zuckerberg-led companies are rated as “overweight” by the bank, in part because of tax benefits thanks to the OBBBA. The former reports on Thursday after the close, while the latter is slated to deliver results on Wednesday postmarket.
Kaplan’s tactic is to position for strength — but not too much strength — from both stocks as investors react to the quarterly figures. His recommendations:
Buy the Amazon $235 strike call that expires this Friday while selling the $245 strike;
But the Meta $780 strike call that expires this Friday while selling the $805 strike.
Both are call spread trades, but there’s a bit of a different rationale for why in each company.
Skew on Amazon is fairly flat, per Kaplan. That is, there’s not too big of a difference between the implied volatility of close-to-the-money call options and those that are further out of the money, making call spreads relatively cost-efficient. In the case of Meta, Kaplan says that earnings volatility is “cheap,” with the options market implying a move of plus or minus 6.1% coming into this week, versus an average one-day reaction of plus or minus 7.5% going back to Q3 2014. However, it’s a very well owned stock, he noted, which could cause a more muted reaction even in the event of strong results.
