Option Volatility and Earnings Report for April 27 – May 1

It’s a mammoth week of earnings with loads of big names due to report this week. We have Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Meta Platforms (META), Alphabet (GOOGL), Robinhood Markets (HOOD) and Caterpillar (CAT) all reporting in what shapes as a busy and pivotal 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

VZ – 5.0%

CLS – 13.0%

Tuesday

HOOD – 9.9%

KO – 3.0%

GLW – 11.8%

GM – 7.0%

V – 4.1%

SBUX – 6.9%

UPS – 7.0%

STX – 12.3%

Wednesday

AMZN – 7.3%

MSFT – 6.7%

META – 7.4%

GOOGL – 5.6%

QCOM – 8.7%

F – 6.4%

CVNA – 13.9%

CMG – 9.5%

ABBV – 5.1%

EBAY – 8.2%

Thursday

AAPL – 4.1%

SNDK – 16.9%

LLY – 7.2%

WDC – 12.1%

COP – 4.3%

AMGN – 5.0%

MRK – 4.9%

BMY – 5.1%

CAT – 6.7%

RCL – 9.0%

MO – 4.4%

MA – 4.3%

Friday

XOM – 4.2%

CVX – 3.9%

CL – 4.0%

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 Rank: Greater than 70%

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. 

Last Week’s Earnings Moves

UNH +7.0% vs 6.0% expected

GE -5.6% vs 5.9% expected

COF -1.5% vs 5.6% expected

RTX -4.4% vs 5.5% expected

TSLA -3.6% vs 6.4% expected

BA +5.5% vs 5.3% expected

NOW -17.8% vs 10.1% expected

LRCX -2.6% vs 8.1% expected

TXN +19.4% vs 6.5% expected

IBM -8.3% vs 6.7% expected

VRT -2.3% vs 10.2% expected

GEV +13.8% vs 6.5% expected

INTC +23.6% vs 11.1% expected

FCX -12.6% vs 5.8% expected

NEM +8.7% vs 6.8% expected

UNP +8.8% vs 3.9% expected

BX -5.7% vs 5.6% expected

AXP -4.3% vs 4.6% expected

NEE +6.9% vs 3.7% expected

LMT -4.6% vs 4.9% expected

SLB +2.6% vs 5.3% expected

PG +2.5% vs 3.7% expected

Overall, there were 10 out of 22 that stayed within the expected range. Only 10 out of 22 moved higher following their announcement.

Unusual Options Activity

INTC, NVDA, LRCX, AMZN, AMD and GOOGL 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.