Option Volatility and Earnings Report for January 29 – February 2

Earnings season continues is earnest this week with plenty of big names reporting. This week, we have Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Mastercard (MA) and Boeing (BA) all reporting.

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

NUE – 5.3%

SMCI – 12.2%

Tuesday

AMD – 9.5%

DHR – 4.3%

GM – 5.1%

GOOGL – 5.5%

MSFT – 4.6%

PFE – 4.6%

SBUX – 5.8%

UPS – 5.5%

Wednesday

BA – 4.8%

MA – 3.2%

QCOM – 6.0%

Thursday

AAPL – 3.7%

AMZN – 6.6%

CLX – 5.8%

HON – 3.2%

META – 7.1%

MO – 2.8%

MRK – 2.7%

RCL – 7.4%

Friday

ABBV – 3.4%

BMY – 5.2%

CVX – 3.0%

XOM – 3.1%

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.

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 2,000
• Market Cap: Greater than 40 billion
• IV Percentile: Greater than 70%

This screener produces the following results sorted by IV Percentile. 

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 we only had one company of interest report earnings:

UAL +5.3% vs 7.0% expected

JNJ -1.6% vs 2.3% expected

PG +4.1% vs 2.9% expected

NFLX +10.7% vs 8.0% expected

VZ +6.7% vs 3.6% expected

TXN -2.5% vs 4.8% expected

GE -1.0% vs 5.2% expected

ISRG -0.4% vs 5.7% expected

RTX +5.3% vs 4.0% expected

LMT -4.2% vs 3.1% expected

MMM -11.0% vs 4.3% expected

HAL +2.5% vs 4.1% expected

TSLA -12.1% vs 6.8% expected

ASML +8.9% vs 4.8% expected

ABT -2.8% vs 3.0% expected

IBM +9.5% vs 4.2% expected

NOW +0.4% vs 5.6% expected

T -3.0% vs 4.7% expected

FCX +4.1% vs 4.8% expected

LVS +1.0% vs 5.9% expected

V -1.7% vs 3.2% expected

INTC -11.9% vs 7.6% expected

TMUS -0.3% vs 3.4% expected

BX +2.4% vs 4.2% expected

HUM -11.7% vs 4.5% expected

VLO +3.3% vs 3.8% expected

DOW +3.5% vs 3.4% expected

LUV -2.3% vs 6.5% expected

WDC -3.5% vs 6.8% expected

AXP +7.1% vs 4.1% expected

CL +2.0% vs 2.5% expected

Overall, there were 18 out of 31 that stayed within the expected range.

Changes In Open Interest

LCID, TSLA, AAL, MARA, RIVN, PFE, PYPL and AMZN 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.

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