Options Traders Split on Alphabet as Earnings Report Nears

Options traders are taking sharply different positions on Alphabet as the company prepares to report earnings after the market closes on Wednesday. Current options prices imply a move of nearly 6% for the stock, well above its eight-quarter median move of 2.6%.

On the bullish side, a trader bought 2,271 contracts of the 350/365 call spread just before noon, paying about $4.4. The position targets a rise to $365, roughly a 13% jump from the current price. The trade is a bet that the worst is over for Alphabet in the near term. Its shares have fallen nearly 20% from the all-time highs reached in May.

Another trader went the other way with a bearish 3x1 put diagonal. The trader sold 9,000 puts at the 290 strike expiring Nov. 20 at $4.15 each, and bought 3,000 puts at the 300 strike expiring Jan. 15, 2027 at $2.15 each. The structure is meant to take advantage of high near-term volatility in Alphabet's shorter-dated puts. The aim is for those puts to expire worthless, leaving the trader holding the longer-dated 300-strike puts and looking for a 9% decline through mid-January.

The earnings reports from Alphabet and Microsoft are a key test for a market that has staged a modest rally. The two stocks enter the reports in very different technical positions. Microsoft sits less than 1% below the closing record it reached earlier this month. Alphabet is near technical bear-market territory, about 20% below its May closing high.

Cboe LiveVol data show market-makers pricing a 5.8% move for Alphabet after the report, compared with a swing of under 5% for Microsoft. That is smaller than Microsoft's two-year average move of 6%. For Alphabet, whose average reaction over the same period is 2.7%, the implied move is more than double. That arguably makes sense given that the shares fell 7% after last quarter's report and rose 10% after the one before it.

Barchart data show the ratio of puts to calls has gradually risen on both stocks as the Nasdaq 100 Index pulled back. Over the past year, though, the baseline for both has favored calls, with the ratio consistently below 1. For Microsoft the ratio is 0.59, up from a low of 0.43 in June. For Alphabet it is 0.72, the highest since August.

Tuesday's options flows in Alphabet looked more positive, according to Cboe data. Of the roughly 435,000 options traded, calls made up the large majority. Almost 102,000 of the call trades were likely initiated by buyers, compared with just 54,000 by sellers, and the rest occurred near the mid-price.

SpotGamma data show some of the heaviest call buying came at the 360 strike for January expiry. A single trader appeared to buy about $18.5 million of those calls across eight transactions of 2,850 contracts each.