The financial market is poised for a significant week with numerous major companies scheduled to release their earnings reports. Among these are industry giants such as Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Meta Platforms (META), SoFi Technologies (SOFI), Alphabet (GOOGL), Coinbase (COIN), and Advanced Micro Devices (AMD).
Before an earnings report is released, market uncertainty typically leads to a surge in implied volatility. This is due to the speculative and hedging activities that create a significant demand for the company’s options, thereby increasing the implied volatility and, consequently, the price of options.
Post-earnings announcement, implied volatility generally reverts to its usual levels. To gauge the expected stock price range, one can examine the option chain and sum the prices of the at-the-money put and call options. This provides an insight into the market’s expectations and potential price movements following the earnings release.
For an approximate estimate, use the first expiry date following the earnings date. While not as precise as a detailed calculation, this method offers a reasonably accurate estimate.
**Monday:**
– ON: 9.3%
– WM: 4.9%
– F: 8.0%
**Tuesday:**
– BUD: 4.1%
– SOFI: 13.0%
– AMD: 7.8%
– GOOGL: 6.4%
– PFE: 4.2%
– PYPL: 8.2%
– MCD: 4.0%
– SNAP: 19.9%
– CMG: 7.6%
– BP: 4.1%
– FSLR: 8.0%
– V: 3.4%
– SPOT: 11.8%
**Wednesday:**
– MSTR: 10.0%
– COIN: 10.0%
– META: 8.3%
– MSFT: 4.8%
– CVNA: 14.4%
– SBUX: 5.7%
– HOOD: 10.5%
– KHC: 3.9%
– ABBV: 4.2%
– LLY: 6.3%
– DASH: 9.0%
– ROKU: 13.9%
– MGM: 6.7%
– TWLO: 9.6%
– CAT: 5.0%
– HUM: 6.7%
– AMGN: 5.3%
**Thursday:**
– AAPL: 3.9%
– AMZN: 6.8%
– INTC: 10.0%
– UBER: 7.5%
– RBLX: 11.5%
– BMY: 4.5%
– MRK: 4.6%
– TEAM: 11.9%
– MA: 3.6%
**Friday:**
– XOM: 3.2%
– CVX: 3.5%
– D: 4.6%
Option traders can use these expected moves to structure trades. Bearish traders can consider selling bear call spreads outside the expected range.
Bullish traders can sell bull put spreads outside the expected range or consider naked puts for those with higher risk tolerance. Neutral traders can look at iron condors. When trading iron condors over earnings, it’s best to keep the short strikes outside the expected range. When trading options over earnings, stick to risk-defined strategies and keep position size small. If the stock makes a larger than expected move and the trade suffers a full loss, it should not have more than a 1-3% effect on your portfolio. We can use Barchart’s Stock Screener to find other stocks with high implied volatility. Let’s run the stock screener with the following filters: Total call volume greater than 5,000, Market Cap greater than 40 billion, IV Percentile greater than 80%. This screener produces the following results sorted by IV Percentile.
For details on finding option trades this earnings season, you can refer to this article. Last week’s actual versus expected moves are as follows: NUE -6.5% vs 4.9% expected; SAP +1.2% vs 7.9% expected; VZ -5.0% vs 3.9% expected; GM +9.8% vs 5.5% expected; GE -9.1% vs 4.9% expected; ENPH -14.9% vs 12.6% expected; RTX -0.3% vs 4.3% expected; MMM -2.3% vs 7.3% expected; TXN +4.0% vs 5.2% expected; PM +10.5% vs 3.9% expected; KMB -4.5% vs 3.6% expected; LMT -6.1% vs 3.6% expected; TSLA +21.9% vs 7.4% expected; BA -1.8% vs 5.5% expected; NEM -14.7% vs 5.3% expected; T +4.6% vs 4.8% expected; NEE +1.5% vs 4.6% expected; VRT -3.7% vs 10.9% expected; KO -2.1% vs 2.7% expected; IBM -6.2% vs 5.7% expected; BSX -0.6% vs 4.4% expected; LVS +2.8% vs 5.5% expected; NOW +5.4% vs 6.2% expected; CME +0.4% vs 4.3% expected; LUV -5.
In the financial market, option volatility is a critical factor for investors to consider, especially during earnings reports. For the week of October 28 to November 1, we observed the following performance:
UPS reported a 6% increase, slightly above the expected 5.8%. Kohlberg Kravis Roberts (KKR) saw a 3.4% increase, compared to the expected 4.2%. Honeywell (HON) experienced a -5.1% decrease, which was below the expected 3.6% increase. The Dow Chemical Company (DOW) had a -1.0% decrease, compared to the expected 3.2% increase. Union Pacific (UNP) reported a -4.4% decrease, below the expected 3.3% increase. Vale (VALE) showed a 3.7% increase, just below the expected 4.0%. Out of 31 companies, 18 stayed within the expected range. Unusual Options Activity Last week, several companies experienced unusual options activity. Tesla (TSLA), General Motors (GM), Palantir Technologies (PLTR), Occidental Petroleum (OXY), and MicroStrategy (MSTR) were among those with significant activity. Other stocks with unusual options activity are listed below. Please note that options trading is inherently risky, and investors should be aware that they can lose their entire investment. This article serves an educational purpose and is not intended as a trade recommendation. Always conduct thorough research and consult with a financial advisor before making any investment decisions.
