MW The S&P 500's record high may be an illusion - and this rally is a warning

By Lawrence G. McMillan

Tesla, IBM and Intel report earnings next week: Here's the best way to play the volatility

Earnings season brings stock investors several high-profile reports next week, including Tesla $(TSLA)$, IBM $(IBM)$, Intel $(INTC)$ and UnitedHealth $(UNH)$. The earnings surprises to look for - potential drivers of the share price - have a particular pattern of implied volatility.

Consider IBM. The two-year chart below has two graphs on it. The stock price is the bottom graph and implied volatility is on the upper graph. One can see that implied volatility increases into a spike and then plunges, creating a sawtooth pattern. Implied volatility increases as the earnings date approaches and then plunges after the earnings are announced.

The following table shows the stocks that are reporting earnings next week. This list normally is comprised of stocks whose options have increased implied volatility. That is, the option market is expecting a potentially volatile move after the earnings news.

Our approach is to attempt to buy the shortest-term straddle possible (generally the one expiring on the Friday after the earnings reporting date) and to exit at the close of the first full day of trading after the earnings have been reported. For the stock listed in this table, that would mean buying the straddles expiring on April 24.

Specifically, the columns below (from left to right) are:

Date: The earnings reporting date.

Pm?: Whether the earnings are to be reported before the market opens ("N") or after the market closes ("Y").

Symbol: The stock symbol.

Needed: The most that we would pay for that near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price. In reality, this is the percentage move that is smaller than six of the past 10 post-earnings moves in this stock.

Optvol: The 20-day average of total option volume on this stock. Low numbers here indicate a potentially illiquid situation.

   Date     pm?  Symbol   OptVol 
   4/21/26  N    UNH      6.04%  73,894 
   4/21/26  Y    ISRG     1.91%  2,491 
   4/22/26  Y    IBM      6.16%  22,343 
   4/22/26  Y    LVS      4.31%  4,402 
   4/22/26  Y    TSLA     8.19%  2,167,418 
   4/22/26  Y    TXN      5.60%  10,360 
   4/23/26  N    UNP      2.14%  3,948 
   4/23/26  Y    INTC     8.52%  492,763 

Tesla straddles are currently cheap enough to buy in advance of the earnings. The at-the-money TSLA (Apr. 24) 385 straddle recently traded for about 7.2% of Tesla's stock price, If this pricing relationship holds, we would buy the at-the-money straddle at the close of trading on April 22, just before the earnings are announced. Then, that straddle would be exited the next day.

Can the S&P 500 hold?

The S&P 500 Index SPX has had a tremendous rally of more than 700 points in just 11 trading days - though it was almost flat on Thursday. As SPX has continued its recent bullish advance, it closed at a new all-time high, as did the State Street SPDR S&P 500 ETF Trust SPY. The Nasdaq 100 Index NDX did the same, but both the Dow Jones Industrial Average DJIA and the Russell 2000 RUT have yet to make new all-time highs.

We saw several attempts to break out to new all-time highs this past January and February. They all failed, and as a result, a market correction eventually developed. So, for this to be meaningfully bullish to the SPX chart, we want to see the upside breakout persist from here. Admittedly, the market is a bit overbought after the monster run in the past 12 trading days, so that might present something of a problem.

SPX has now closed above the +4<SIGMA> "modified Bollinger band" (mBB). When it touched that band on Monday, that completed a successful MVB buy signal, which originally took place on April 1 just below the 6,600 level on SPX. Now that we have closed above the +4<SIGMA> band, a "classic" sell signal will occur when SPX closes back below the +3<SIGMA> Band. However, we don't trade those. Rather, we wait for further confirmation for a completed MVB sell signal, which is not guaranteed to occur. That "classic" sell signal would occur today if SPX closes below 6,913.

Read: Stocks usually take the escalator up and the elevator down. In this latest rebound, it is happening in reverse.

Equity-only put-call ratios are now plunging and are in fully bullish mode in their outlook for stocks. They will remain on these buy signals as long as the ratios are declining.

Market breadth has been strong and positive, and both breadth oscillators remain on buy signals. They are in overbought territory, but that alone is not a sell signal. Cumulative volume breadth (CVB) made a new all-time high for the third day in a row. "Regular" breadth's cumulative totals are nearing all-time highs as well, both in terms of "stocks only" and NYSE data.

New highs outnumbered new lows, so this indicator remains bullish.

VIX VIX closed almost exactly on its 200-day moving average. If it closes clearly below that MA for two consecutive days, that would stop out the current trend of VIX sell signal. Meanwhile, the construct of volatility derivatives remains bullish for stocks.

So, the indicators have been improving and so has the market. Be sure to roll up where indicated (the next rolls would be if SPY hits the 705 level). One of these times, the market will indeed break out to new highs and accelerate from there. Is this the time? It seems so, but we will heed what the indicators say. If they reverse direction, so will we.

We are going to add two put-call ratio buy signal recommendations in individual stocks:

New recommendation: Mohawk Industries

There is a new weighted put-call ratio buy signal in Mohawk Industries $(MHK)$. This is coming from an extremely high reading of 350, meaning that $350 is being spent on puts for every $100 being spent on calls. That put-call ratio was increasing rapidly over the past month as the stock fell from about $140 to $95. Now, the ratio has rolled over and formed a local maximum on its chart. That is a buy signal, and it has been confirmed by MHK climbing over resistance at $100.

Buy 2 MHK (May 15) 105 calls in line with the market.

As one can see from the chart, there was a successful buy signal about a year ago, from a slightly lower level on the put-call ratio chart. There was also a successful sell signal last summer, although that it is not apropos to the current analysis.

We will hold these calls as long as the weighted put-call ratio of MHK remains on a buy signal.

New recommendation: Carnival Corp.

Similarly, a new weighted put-call ratio has been generated by Carnival $(CCL)$, and the stock is technically strong after a gap higher. From the accompanying chart, one can see that this is the third buy signal in the past year. The two previous ones were successful, as were three sell signals. We will hold these calls as long as the weighted put-call ratio for CCL continues to decline (i.e., as long as it remains on a buy signal).

Buy 3 CCL (Jun. 18) 27 calls in line with the market.

Follow-up action:

All stops are mental closing stops unless otherwise noted.

We are using a standard rolling procedure for our SPY spreads: In any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed.

Also, for outright long options, roll if they become 8 points in-the-money.

Long 1 TSEM (May 15) 205 call and short 1 TSEM (May 15) 220 call: The position was rolled up, 15 points on each side, when TSEM $(TSEM)$ traded above 205 on April 8. Roll up and out both sides, 15 points each, if TSEM trades at 220.

Long 1 BKR (Jul. 17) 65 call and long 1 BKR (Jul. 17) 60 put: Roll the BKR $(BKR)$ call up at $75 and roll the put down at $50.

Long 2 expiring ARKK (Apr. 17) 74 calls: roll to the ARKK (May 15) 78 calls. We will hold the calls as long as the weighted put-call ratio for ARKK ARKK remains on a buy signal.

Long 2 expiring KMX (Apr. 17) 42.5 puts: We will hold as long as the weighted put-call ratio for KMX $(KMX)$ remains on a sell signal. Sell these put and do not replace them, since the put-call ratio is no longer on a sell signal.

Long 1 SFL (Aug. 21) 10 straddle: Roll the calls up if SFL $(SFL)$ trades at $13, and roll the puts down if SFL trades at $7.

Long 1 SPY (May 1) 655 call and short 1 SPY (May 1) 680 call: This position is based on the MVB buy signal. It has a target of SPX trading at the +4<SIGMA> band. That target has been reached (on April 15). Close out this spread now and take the profit.

Long 3 expiring HRB (Apr. 17) 30 calls: These calls were bought when HRB $(HRB)$ closed above $32.50 on April 6. Sell the calls now since the put-call ratio is no longer on a buy signal.

Long 1 SPY (May 15) 680 call and short 1 SPY (May 15) 705 call: This position is based on the "new highs vs. new lows" buy signal. This will remain in force until new lows outnumber new high son the NYSE for two consecutive days.

Long 1 SPY (May 15) 680 call and short 1 SPY (May 15) 705 call: This position is based on the equity-only put-call ratio buy signals. They will remain in place until the ratios bottom out and begin to trend higher.

Send questions to: lmcmillan@optionstrategist.com.

Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of "Options as a Strategic Investment." www.optionstrategist.com

(MORE TO FOLLOW) Dow Jones Newswires

April 16, 2026 16:57 ET (20:57 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.