Options playbook: These companies have upcoming news that could swing their share prices

Published Sun, Aug 1 20217:37 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Earnings season has caused some big moves in individual stocks over the last few weeks, including major slides for Amazon and Pinterest on Friday. For investors, options are a popular trading tool to take advantage of or defend against moves caused by earnings reports or other major news events. Here are some of the options ideas from top Wall Street firms from the past week. An earnings season energy play More than half of major U.S. companies have now reported second-quarter earnings, Goldman Sachs derivatives analysts Vishal Vivek and John Marshall said in a note last week that they see an opportunity to make an upside bet before another report. The firm recommended buying August call options with an $80 strike price on Diamondback Energy , which reports earnings after the bell on Monday, Aug. 2. "Supported by a positive commodity price outlook, [Goldman analyst Neil Mehta] believes the company is on track to generate favorable [free cash flow], which it can deploy toward debt reduction or capital return to shareholders," the Goldman note said. A call option gives the holder the right to buy a stock at a set strike price before expiration. The trade makes a profit when the stock in question rises above the strike price far enough to cover the premium paid for the option. A benefit to investors is that the only risk involved with a call option is the price paid for the contract. Downside for Tesla Few stocks have matched the volatility of electric automaker Tesla in recent years, and its shares could be due for another downturn, according to JPMorgan equity derivatives strategist Shawn Quigg. Tesla CEO Elon Musk is awaiting a verdict in a shareholder lawsuit involving his company's purchase of SolarCity . If Musk loses that verdict, it could change the way professional asset managers view the stock and create selling pressure at the same time Tesla's growth outlook could be dimming. "This potential shift in fiduciary burden may also come at a time when TSLA may no longer be considered the high-growth disruptor it once was, as many competing [original equipment manufacturers] are slated to launch comparable EV models in the year ahead, diluting Tesla's disruptor appeal," Quigg said in a note to clients. JPMorgan recommended that investors buy November puts with a $550 strike price against Tesla. A put option works in a similar way to a call option, but is a bet that the stock will fall instead of climb. These options would make a profit if Tesla's stock falls significantly in the coming months. A ruling against Musk could also cause a big hit to the ARK Innovation ETF , where the stock is a top holding, JPMorgan noted. Catalyst call Another potential use of options can come when Wall Street researchers make catalyst calls, which are a suggestion that a stock may make a near-term jump. One of those this week came from Deutsche Bank's Robert Grindle, who added a catalyst buy signal to Liberty Global . "We expect a number of catalysts in the 3-month life of this catalyst call including: the announcement of dividend policy at Virgin Media O2, an expansion of U.K. fiber build, potential wholesaling of U.K. fiber/cable infrastructure, improving operating momentum post COVID and evidence of synergy extraction post recent M & A in both U.K. and Switzerland," Deutsche Bank said in a note. To play this catalyst call, an investor could simply buy the stock and hold it through these events, or one could purchase call options on the stock that would make money if the stock does jump. The benefit of using a call option in this case would be if the catalysts turn out to be negative instead of positive, then the investor would only lose the premium paid for the option and not be hit by a decline in the stock. -CNBC's Michael Bloom contributed to this report.

Employees wait for the arrival of U.S. Vice President Mike Pence, not pictured, at a Diamondback Energy oil rig in Midland, Texas, April 17, 2019.

Callaghan O'Hare | Bloomberg | Getty Images

Earnings season has caused some big moves in individual stocks over the last few weeks, including major slides for Amazon and Pinterest on Friday.

For investors, options are a popular trading tool to take advantage of or defend against moves caused by earnings reports or other major news events.