(Bloomberg) -- Options traders are keeping calm ahead of this quarter’s biggest week of earnings.
Companies representing more than 30% of the Russell 1000 Index’s market value are expected to report this week, including technology and energy giants from Apple Inc. to Exxon Mobil Corp. On top of that, the Federal Reserve will announce its latest rate decision Wednesday, while Donald Trump is issuing executive orders and pronouncements on everything from interest rates to oil prices.
Despite all that, traders are showing little appetite to hedge against sudden swings in share prices. That’s partly because stocks hit record highs last week amid optimism that inflation will keep slowing and signals that Trump may temper some of his campaign-trail talk around higher tariffs. The Cboe Volatility Index sank to this year’s low, signaling a big shift in sentiment from late 2024, when traders were increasingly concerned about the path of interest-rate cuts by the Fed and potential Trump administration policies.
“The market is relatively risk-tolerant and looks like everybody is on a good mood,” said Steve Sosnick, chief strategist at Interactive Brokers. “Most of the positioning so far is not showing a tremendous bias one way or the other.”
One broad measure illustrates the market calm. The put-call ratio across US stocks is near multi-year lows, indicating a decline in demand for downside protection.
“That’s a decent indicator of what clients are thinking as far as owning more upside into the big-cap tech earnings, especially after Netflix results,” said Daniel Kirsch, head of options at Piper Sandler. “Outside Apple, the sentiment is pretty optimistic.”
Take Meta Platforms Inc. Options are implying a 6.7% move in the session after it reports fourth-quarter earnings on Jan. 29, according to data compiled by Bloomberg. That would lag the average 11% fluctuation following the past eight results. The put skew also shows that traders are far less risk averse now than before the last release, when it was much steeper.
Microsoft Corp. has a similar pattern: Its skew has flattened, signaling that traders are not betting on big stock moves in either direction. Tesla Inc., whose 7.7% expected swing pales next to its 12% average fluctuation following past results, has a call skew as traders shifted their wagers after Trump’s election to favor further gains in the stock.
Apple options are implying a bigger move than what was realized in the past. Yet its skew, which has been steeper than most of the so-called Magnificent 7 tech giants since the middle of 2024, has narrowed in recent weeks. While traders have become more cautious after the stock received a pair of analyst downgrades, the lack of upside positioning in the shares creates more room for a positive surprise.
Of the biggest companies reporting earnings this week that have active options trading, most are implying smaller fluctuations than realized on average in the session following the past eight quarterly reports. Options on Apple and semiconductor company Lam Research Corp. appear to be the most overpriced, while those on Meta and Tesla are underpriced.
Outside of tech, Exxon and Chevron Corp. lead oil major earnings late in the week. Options are pricing little difference between the expected stock swing and past moves. While oil futures slipped last week, with Trump urging OPEC to lower the price of crude, there appeared to be little shift in positioning among the producers.
Overall, the options market expects earnings volatility this quarter to be below the three-year average fluctuations in the day following past results and well below last quarter’s realized moves, according to JPMorgan Chase & Co.’s global quantitative and derivatives strategy team.
“The average implied moves are the lowest going into earnings since the 4Q23 earnings season,” strategists including JPMorgan Daniel Motoc wrote in a note.