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Options traders are betting on an Uber surprise to the upside on earnings

Here's what to expect going into Uber earnings tomorrow

After one ride-hailing unicorn passed its earnings test with flying colors, all eyes turn to the other.

Uber reports after the closing bell Thursday, and after Lyft crushed Wall Street's expectations on the top and bottom line in its second earnings report since its March IPO, the options market is expecting quite a performance.

However, despite the options market forecasting a 10% move for Lyft after its earnings report, the stock is trading 4% higher on Thursday, highlighting the difficulty of predicting how a stock with such little history will move on earnings.

"In cases like Uber — recent IPOs where you don't have the history that you often have for other stocks when you're taking a look at earnings — the options market is really the only place you can go to get a sense of how the stock might behave," options trader Mike Khouw said Wednesday on CNBC's "Fast Money."

"This is where the buyers and sellers of moves in the stock can, essentially, establish what the correct price for it is."

As the "Options Action" trader explained, the process through which the options market develops this price signal is the at-the-money straddle.

For Uber's weekly options contracts, traders first identify the strike price closest to where the stock is currently trading. In this scenario, that strike price was $40.

Then, Khouw said, "You add up the prices of these [calls and puts] together. In this case, it works out to $3.60, which is 9% of the current stock price.

"So, the options market is implying that Uber is likely to move 9% up or down by Friday after they report."

As for which direction the options market is expecting to move, that answer can be found by looking at the most popular contracts trading on the day.

"As has generally been the case for Uber, the flow has been somewhat bearish," Khouw said, "but interestingly, today we actually saw more calls than puts. That hasn't typically been the case."

Khouw pointed out that the most active contracts on Wednesday were the Aug. 9 expiration 45-strike calls. Those contracts were trading at a discount compared with other contracts, at just 20 cents apiece. They also represent something of a pie-in-the-sky scenario for Uber, breaking even 14% above where the stock closed on Wednesday.

"I think what might be going on here was that somebody was saying, 'these are cheap lottery tickets in case Uber gives us a positive upside surprise,'" said Khouw.

"Actually, with what we're seeing from Lyft, it might be possible."

Uber shares were trading 6.5% higher on Thursday at $42.28.