Taking Advantage of the Stock Market's Volatility Could Be Profitable for Tesla and Alphabet

A wave of corporate earnings reports is about to hit Wall Street, with numerous U.S. companies gearing up to announce their latest quarterly results. Among the most anticipated are Tesla and Alphabet, both of which are expected to have a significant impact on the market following their respective announcements. Given the broader market’s recent turbulence, any big moves in these stocks could further heighten volatility.

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So far this week, the S&P 500 Index has been attempting to stabilize. Despite some gains, recent rallies appear to be short-lived, mostly technical bounces from oversold conditions. After hitting a low between 4,850 and 4,950 last week, the index managed a strong single-day rally but has since struggled to find clear direction. The 5,450 to 5,500 range has proven to be a ceiling, with multiple attempts to push higher falling short. This area also coincides with a declining 20-day moving average, reinforcing it as a zone of resistance.

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As long as the index fails to break past this level, the chart remains bearish — lower highs and lower lows suggest continued weakness. A sustained move above 5,800 would shift the sentiment, but this would also require breaking through the declining 200-day moving average.

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On April 9, a “classic” modified Bollinger Band buy signal was triggered after a sharp rally. However, instead of acting on that signal immediately, the strategy being used waits for confirmation via a McMillan Volatility Band (MVB) buy signal. That hasn’t happened yet. The MVB buy signal would only kick in if the S&P 500 trades above 5,575, moving past the current resistance range.

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Other indicators remain mixed. For example, equity-only put-call ratios are showing divergence. The standard ratio is still rising, a bearish sign, and computer models suggest only a 37% chance of a buy signal at current levels — far below the 90% confidence needed for confirmation.

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Meanwhile, the weighted put-call ratio recently peaked and remains there, which technically represents a buy signal. Still, until both ratios confirm by peaking and trending downward, the overall indicator won't be considered bullish.

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Market breadth has shown slight improvement this week but not enough to shift sentiment. The NYSE-based breadth oscillator has generated a buy signal, but its “stocks only” counterpart hasn’t followed. Both need to confirm a buy signal before the outlook can improve. For now, the "stocks only" breadth oscillator is still oversold and requires more upward movement to shift gears.

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New lows continue to outpace new highs on the NYSE, though the overall count of new lows has declined. However, this indicator still leans bearish. It would only turn positive if new highs exceeded new lows for two consecutive trading sessions.

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The Cboe Volatility Index (VIX) remains elevated — around 30 — though it’s well below its recent peak of 60. The “spike peak” buy signal from when volatility surged remains active, but so does the broader sell signal that’s been in place since late February.

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That buy signal will expire in 22 trading days or if VIX climbs above its previous peak of 60.13. Any positions aligned with that earlier signal have already been adjusted as the market declined.

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Looking at the structure of volatility derivatives, sentiment remains negative. The term structures of both VIX futures and the Cboe Volatility Index continue to slope downward. With April contracts having expired, May is now the front month and is trading higher than June — a bearish development.

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Additionally, VIX trading above the three-month volatility index (VIX3M) further supports the negative view. When these structures return to an upward-sloping trend, a short-term buy signal could emerge — but that hasn't happened yet.

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For now, the outlook remains cautious, and a core bearish stance is being maintained. The strategy involves acting only on confirmed signals while managing existing positions by rolling in-the-money options to lock in partial gains and collect credits.

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Turning to earnings, Tesla is set to report results after the market closes on April 22. There’s a lot of uncertainty surrounding the stock, which is typical. Over the last 10 earnings reports, Tesla has moved by at least 11% the next day on five occasions. Options markets help estimate expected moves by pricing near-term straddles — simultaneous purchases of at-the-money calls and puts.

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As of now, the April 25 straddle is priced at about 11.2% of Tesla’s stock price. If traders can buy the straddle for around 11%, it could be a worthwhile speculative bet on post-earnings volatility.

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The suggested trade would be to enter the straddle late in the day on April 22, ensuring the total cost doesn’t exceed 11% of the stock’s price. Charts of Tesla show notable spikes in implied volatility leading up to earnings, reflecting rising demand for options as traders brace for a big move.

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A similar opportunity may exist with Alphabet, which is scheduled to release its earnings after the close on April 24. In five of the last 10 reports, the stock moved at least 7% the following day. If the April 25 straddle can be purchased for no more than 7% of the current share price, a speculative position may be justified. As with Tesla, implied volatility for Alphabet typically spikes ahead of earnings, suggesting traders are betting on a significant move.

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