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UBS's options setup for incoming big tech earnings

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Analysts Notebook wrote a column · Apr 15, 2022 06:16
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. Read more
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