Since earnings season started on Oct. 8, the S&P 500 has screamed higher, rallying 4 percent despite relatively modest results. Of the 177 S&P 500 companies that have already reported, 70 percent beat earnings estimates, but 59 percent missed on revenues, according to Thomson Reuters. Moves on the options market suggest that traders should brace for big moves in some widely held stocks.
Major companies reporting over the next few days include Apple, Exxon, Starbucks, Amgen, Twitter, Ford, GoPro, Alibaba and Buffalo Wild Wings. The options market is implying huge moves for many of these names.
Starbucks, which hit an all-time high on Monday, is expected to move nearly 4 percent in either direction after its earnings report on Thursday. Buffalo Wild Wings is expected to see an 8 percent spike or decline following its report on Wednesday after the bell. Exxon and Chevron — both reporting Friday — are projected to move around 2.5 percent.
But it's the big tech names that could have the most impact on the market. The options market is implying Apple, GoPro, Twitter and Alibaba to move a respective 5, 15, 12, and 8 percent move in either direction following their earnings reports. If each of those forecasts were to pan out, it could result in a more than $50 billion shift in market cap by the end of the week.
To calculate how much a stock may move on earnings, options traders look to the front-week at-the-money put and call strike prices — known in options parlance as a straddle — to estimate how much a stock will move. The cost of the straddle usually captures how much traders think a stock will move. In some ways, one could look at it as the point spread in a sports contest.
Of course, all eyes will be on Apple ahead of its report on Tuesday after the closing bell. The stock was down more than 3 percent on Monday afternoon. And for RiskReversal.com founder Dan Nathan that implied move could resolve down if iPhone sales data disappoint. "Analysts are expecting somewhere between 70 to 75 million iPhone units in this upcoming quarter, and that does not exceed last year at this time," he told CNBC's "Options Action " on Friday. "I think [investors] will have to adapt to a stock that is not really going to grow."