NEW YORK/CHICAGO (Reuters) ? As four big tech bellwethers ready their earnings reports after the bell on Thursday, the big question is whether their results will further fuel a solid rally in the tech sector.
Major companies due to report quarterly earnings include Dow components, Intel Corp, Microsoft Corp, International Business Machines and Google Inc.
The Nasdaq 100 index, which tracks the 100 largest non-financial companies listed on the Nasdaq, is up 7.3 percent so far this year, and could easily top its 10 percent gain in October, which was its best month since Sept 2010. For the year the S&P 500 is up 4.6 percent.
"Solid earnings would help to confirm the price action we have been seeing in the Nasdaq 100 index," said Steve Place, a founder of options analytics firm investingwithoptions.com in Mobile, Alabama.
"Maybe investors have already anticipated solid earnings from the major tech stocks and that has led to the breakout in the index."
Chip makers have also rallied, with the PHLX semiconductor index up 13 percent for the year.
INTEL AND NASDAQ
The risk, however, is that strong results could give opportunity for investors to take profits on recent gains. Earnings announcements from Intel have often come when the market reaches a top, said Jason Goepfert of SentimenTrader.com.
"Intel's earnings reports have a funny way of occurring near peaks in the broader market," he said, adding especially for technology and particularly when the market has already been doing well.
Goepfert looked at the Nasdaq 100 performance after Intel earnings in the month of January when the index was within 2 percent of a high. This occurred five times in the period between 1997-2011 - 2004, 2006, 2007, 2010 and 2011.
Over the next two weeks after Intel results, the Nasdaq never managed to gain more than 1.7 percent at its best point during any of the five instances, and lost more than 2 percent every time at its worst point.
Despite Intel's impact on the Nasdaq 100, some market analysts are optimistic about the company.
While Intel was recently downgraded by some sellside analysts, MKM Partners semiconductor analyst Dan Berenbaum remains constructive on the shares, with a 12-month price target at $29.
The stock is currently trading up 0.8 percent at $25.57.
MKM Partners derivatives strategist Jim Strugger, in a report, recommends two bullish options strategies for Intel. One entails buying the stock to capture the company's dividend and against that position selling the July $23-$29 strangle to generate an additional synthetic yield of 5.8 percent.
A short strangle involves the selling of a call and a put with the same expiration date and different - but both out-of-the-money - strike prices. This strategy is a play against excessive volatility - the seller of the $23 put and the $29 call collects the premium, and only starts to lose money if shares move sharply beyond those points.
Another trade for upside exposure is buying the July $26-$29 call spread, which involves the sale of the $29 strike against the purchase of the $26 strike for a net cost of 90 cents per contract. The trade would break-even at $26.90 to make a maximum of $2.10 per spread with the stock at $29 or higher at July expiration, Strugger said.
Analysts on average were expecting earnings of 61 cents per share for Intel, according to Thomson Reuters StarMine SmartEstimates, which ranks analysts' estimates according to their past accuracy.
For IBM, the forecast was for $4.63 per share, and for Google, the forecast was $10.55 per share. For Microsoft, the forecast was 76 cents per share.
(Reporting By Angela Moon and Doris Frankel; Editing by Andrew Hay)
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