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Option Volatility And Earnings Report For April 29 – May 3It’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:
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. |
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