Single stock upside is priced too cheaply this season

Single stock upside is being priced too cheaply into these prints. Something has been off in earnings vol this season, and it looks like it's still off going into the next few.

Look at what's already happened.

Microsoft did about 15% on its print. Amazon did about 15% on its print. Both roughly doubled what the options market had priced as the implied move.

When two of the largest companies in the world blow through their expected move on the same round of earnings, that reads as a systematic mispricing. Two data points that big at the same time move it out of coincidence territory.

Now look at what's coming.

Nvidia (today) is pricing about a 5.5% move for its print. On a company that size, 5% is an enormous amount of dollar value. It isn't obviously cheap in absolute terms. I still wouldn't be shocked to see it do more.

Broadcom is pricing around 7%. The average actual move on that name is closer to 9%. And it printed a 25% move not too long ago. The implied move on Broadcom looks light against its own recent behaviour.

That's the setup as I see it. A season of implied moves consistently getting doubled by the actual moves, and a couple of names coming up that don't look priced for what has been happening.

The practical implication is about which side of these trades you're on.

Selling upside on single names into this environment is where the danger sits. That's the tail that keeps getting breached. Short calls, short call spreads with the short strike too close, call flies that only pay if the move stays inside a range. All of these have been the losing side of the trade this season.

Indices are a different conversation. Names that have already reported are different again. But for the single-stock names still coming, the side that keeps getting hurt is the same side.

I'm not calling a direction on any of them.

The observation is narrower than that. When implied moves keep getting doubled, the structures that quietly rely on them holding are the ones that hurt you. That's true whether you're bullish or bearish on the name itself.

A successful process is one that can evolve with the market and takes the recent data points as valuable input rather than stubbornly clinging onto old ideas that no longer work.

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The bigger point about pricing environments.

Options markets aren't uniformly efficient. There are seasons and setups where the market prices a specific outcome well. There are others where the whole board is off in the same direction.

The pattern this season is that implied moves on mega-cap tech earnings are landing lighter than the actual moves which makes being short earnings vol a bit trickier than usual.

Long premium on names heading into earnings has been the trade. Buying the wings has been the trade. Anything that pays on a move bigger than what's priced has been the trade.

The season isn't over yet. The pricing hasn't corrected. Which means the setup is still there for anyone with conviction who wants to take it.

When the market keeps underpricing the same thing, the trade is to keep taking the other side until it stops.

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