Option Volatility And Earnings Report For April 29 – May 3
It’s another massive week on the earnings front with 39 companies of interest reporting. That’s not quite as many as last week’s 52, but it’s still a lot and could be potentially market shaping this week.
Stock of interest reporting earnings this week include Apple (AAPL), Amazon (AMZN), Advanced Micro Devices (AMD), Coinbase (COIN), Super Micro Computer (SMCI), Paypal (PYPL) and Starbucks (SBUX).
Before a company reports earnings, implied volatility is usually high because the market is unsure about the outcome of the report. Speculators and hedgers create huge demand for the company’s options which increases the implied volatility, and therefore, the price of options.
After the earnings announcement, implied volatility usually drops back down to normal levels.
Let’s take a look at the expected range for these stocks. To calculate the expected range, look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. Use the first expiry date after the earnings date. While this approach is not as accurate as a detailed calculation, it does serve as a reasonably accurate estimate.
Monday
DPZ – 5.8%
MSTR – 11.6%
ON – 10.0%
Tuesday
AMZN – 7.6%
AMD – 8.6%
SMCI – 14.7%
PYPL – 9.1%
SBUX – 6.4%
PINS – 13.2%
KO – 2.2%
CCJ – 7.6%
LLY – 5.7%
MCD – 2.9%
MMM – 4.8%
CLX – 5.4%
Wednesday
PFE – 4.3%
GOLD – 4.3%
CVNA – 16.7%
QCOM – 6.8%
DVN – 4.6%
FSLR – 8.0%
CVS – 5.0%
Z – 10.1%
MGM – 7.0%
KHC – 3.9%
ALB – 7.5%
EBAY – 6.1%
MA – 3.6%
Thursday
AAPL – 4.2%
COIN – 12.5%
DKNG – 10.8%
SQ – 11.8%
MRNA – 8.7%
FTNT – 10.9%
NET – 13.4%
COP – 3.4%
SO – 2.1%
AMGN – 4.8%
EXPE – 9.5%
Friday
Nothing of note
Option traders can use these expected moves to structure trades. Bearish traders can look at selling bear call spreads outside the expected range.
Bullish traders can sell bull put spreads outside the expected range, or look at naked puts for those with a higher risk tolerance.
Neutral traders can look at iron condors. When trading iron condors over earnings, it is best to keep the short strikes outside the expected range.
When trading options over earnings, it is best to 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.
Stocks With High Implied Volatility
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 70%
This screener produces the following results sorted by IV Percentile. As you can see, there are way too many stocks with high IV Percentile to include in this screenshot.
You can refer to this article for details of how to find option trades for this earnings season.
Last Week’s Earnings Moves
Last week’s actual versus expected moves are shown below:
VZ -4.7% vs 4.1% expected
TFC +3.4% vs 4.6% expected
NUE -8.9% vs 4.5% expected
CLF -11.0% vs 7.7% expected
GOOGL +10.2% vs 6.0% expected
V +0.3% vs 3.8% expected
TSLA +12.1% vs 9.7% expected
PEP -3.0% vs 2.9% expected
DHR +7.2% vs 5.0% expected
GE +8.3% vs 5.6% expected
TXN +5.6% vs 5.6% expected
PM +3.8% vs 3.5% expected
RTX -0.2% vs 4.2% expected
NEE +1.4% vs 3.6% expected
UPS +2.4% vs 5.5% expected
LMT -0.3% vs 3.7% expected
FCX +2.0% vs 5.0% expected
SPOT +11.4% vs 10.1% expected
GM +4.4% vs 5.6% expected
HAL -0.3% vs 4.3% expected
ENPH -5.6% vs 14.2% expected
META -10.6% vs 9.1% expected
IBM -8.3% vs 5.8% expected
NOW -4.0% vs 7.2% expected
LRCX +1.9% vs 6.2% expected
T +1.9% vs 4.8% expected
BA -2.9% vs 5.6% expected
CME -1.9% vs 3.1% expected
VALE -2.5% vs 3.7% expected
F +0.7% vs 6.4% expected
HUM -3.7% vs 5.5% expected
MSFT +1.8% vs 4.8% expected
MRK +2.9% vs 3.5% expected
CAT -7.0% vs 5.6% expected
INTC -9.2% vs 7.6% expected
HON -0.9% vs 3.8% expected
BMY -8.5% vs 4.2% expected
GILD +0.2% vs 3.8% expected
MO +1.4% vs 2.8% expected
VLO +0.1% vs 4.2% expected
COF +0.2% vs 5.2% expected
NEM +12.5% vs 5.1% expected
DOW -1.0% vs 3.7% expected
RCL +0.5% vs 7.6% expected
SNAP +27.6% vs 20.2% expected
LUV -7.0% vs 6.4% expected
XOM -2.3% vs 2.9% expected
CVX +0.4% vs 3.1% expected
ABBV -4.6% vs 4.5% expected
CL +1.9% vs 2.9% expected
Overall, there were 31 out of 50 that stayed within the expected range.
Unusual Options Activity
MSFT, META, INTC, GOOGL, NVDA and SNAP all experienced unusual options activity last week.
Other stocks with unusual options activity are shown below:
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.