Option Volatility and Earnings Report For Nov 2-6
It was a bloodbath last week for a lot of companies that reported earnings, will this week be more of the same? Let’s take a look at which companies are reporting this week and what the options market is saying. This week we have Apple (AAPL), Palantir Technologies (PLTR), Advanced Micro Devices (AMD), Pfizer (PFE), Uber Technologies (UBER) and McDonald’s (MCD) all reporting in a very busy and important week for stocks.
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
AAPL – 4.3%
PLTR – 13.3%
Tuesday
AMD – 8.9%
PFE – 4.5%
ALAB – 15.1%
XYZ – 10.7%
SHOP – 13.8%
ANET – 10.3%
AMGN – 4.8%
Wednesday
NVO – 7.3%
QCOM – 10.1%
UBER – 8.0%
ARM – 12.3%
MCD – 3.8%
APP – 17.0%
DDOG – 14.8%
Thursday
LITE – 11.5%
DVN – 5.4%
NET – 15.3%
COP – 4.7%
Friday
MRNA – 10.7%
VST – 8.0%
BRK.B – 2.1%
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.
Last Week’s Earnings Moves
VZ -3.5% vs 4.6% expected
HOOD -3.3% vs 10.2% expected
KO -1.6% vs 3.2% expected
BA -10.7% vs 5.6% expected
PYPL 2.0% vs 7.9% expected
GLW -1.1% vs 9.1% expected
STX +4.5% vs 9.8% expected
FCX +1.2% vs 6.3% expected
V -0.3% vs 3.5% expected
UPS +5.8% vs 6.4% expected
GOOGL -12.6% vs 6.1% expected
MSFT -0.2% vs 5.3% expected
NOW -27.0% vs 10.1% expected
F +3.4% vs 6.2% expected
CVNA +15.7% vs 13.6% expected
VRT +16.5% vs 11.1% expected
GEV -1.9% vs 7.8% expected
BSX -5.8% vs 8.7% expected
KLAC +5.5% vs 8.5% expected
MSTR -7.8% vs 8.4% expected
AMZN -4.3% vs 7.8% expected
INTC -28.6% vs 9.9% expected
COIN -10.6% vs 9.5% expected
SNDK -13.5% vs 10.8% expected
MRK +3.8% vs 5.1% expected
LLY +6.6% vs 6.4% expected
CAT -9.3% vs 7.3% expected
SBUX +2.2% vs 6.6% expected
BMY +1.4% vs 5.4% expected
CVX +1.8% vs 3.8% expected
XOM +2.2% vs 3.8% expected
ABBV +1.4% vs 5.0% expected
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 options volume: Greater than 10,000
- Market Cap: Greater than 40 billion
- IV Rank: Greater than 75%
This screener produces the following results sorted by IV Rank.
You can refer to this article for details of how to find option trades for this earnings season.
Unusual Options Activity
AI, INTC, NVDA, MSTR, MU and SMCI 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 had a position in: NVDA , MCD , HOOD , COIN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.