Here's what options traders see before Alphabet, Microsoft report after the bell

Key points

• Options markets price a 5.8% move for Alphabet after earnings, versus under 5% for Microsoft.
• Alphabet is about 20% below its May closing high, while Microsoft is under 1% below its record.
• Alphabet saw heavy call buying Tuesday, including about $18.5 million in January 360-strike calls.

Alphabet and Microsoft report earnings after the bell, and options traders see sharply different setups for the two tech giants. Microsoft is less than one percent below its closing record set earlier this month, while Alphabet is near technical bear-market territory, down 20% from its May closing high.

Cboe LiveVol data show market-makers are pricing a 5.8% move for Alphabet after its report, compared with under 5% for Microsoft. For Microsoft, that is smaller than its two-year average swing of 6%; for Alphabet, it is more than double its 2.7% average reaction over the same period.

Put-to-call ratios build

The ratio of puts to calls on both stocks has gradually built up on the put side as the Nasdaq 100 Index pulled back, according to Barchart data. Still, both remain below 1, meaning more calls than puts over the past year.

Microsoft's ratio is currently 0.59, up from a low of 0.43 in June. Alphabet's is 0.72, its highest since August.

Alphabet call buying

Tuesday's options flows for Alphabet looked more positive, Cboe data show. Of 435,000 options traded, 312,000 were calls, with almost 102,000 call trades likely initiated by buyers, versus just 54,000 by sellers.

SpotGamma data show some of the heaviest call buying was at the 360-strike for January expiry, where a single trader appeared to buy around $18.5 million of calls across eight transactions of 2,850 contracts each.