Option Volatility And Earnings Report For April 28 – May 2

It’s a big week on the earnings season front with some key Mega Cap stocks reporting. These include Apple (AAPL), Amazon (AMZN), Meta Platforms (META) and Microsoft (MSFT).

Other big names reporting these week are Robinhood Markets (HOOD), Strategy Inc (MSTR), Pfizer (PFE), PayPal (PYPL), Chevron (CVX), Exxon Mobil (XOM), Starbucks (SBUX), McDonald’s (MCD), Eli Lilly (LLY), Caterpillar (CAT), Visa (V) and Spotify (SPOT).

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.

Tuesday

PFE – 3.3%

PYPL – 7.1%

KO – 2.6%

GM – 5.7%

SPOT – 9.8%

UPS – 6.2%

SBUX – 6.6%

V – 3.9%

RCL – 6.5%

Wednesday

MSFT – 4.2%

META – 7.0%

HOOD – 11.5%

QCOM – 5.9%

CAT – 4.9%

Thursday

AMZN – 5.8%

AAPL – 4.4%

MSTR – 6.1%

LLY – 4.8%

MCD – 3.3%

ABNB – 6.9%

TEAM – 11.2%

AMGN – 4.4%

Friday

XOM – 3.1%

CVX – 3.4%

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 10,000
• Market Cap: Greater than 40 billion
• IV Percentile: Greater than 80%

This screener produces the following results sorted by IV Percentile. Despite the market recovery, there are still a lot of stocks showing a high 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

TSLA +5.4% vs 9.2% expected

VZ +0.6% vs 4.2% expected

GE +6.1% vs 5.7% expected

MMM +8.1% vs 6.3% expected

COF +3.7% vs 5.5% expected

RTX -9.8% vs 4.5% expected

LMT +0.8% vs 4.4% expected

ISRG +1.9% vs 6.9% expected

NEM +2.2% vs 5.7% expected

BA +6.1% vs 5.7% expected

T +0.9% vs 4.7% expected

CMG +1.6% vs 6.9% expected

PM +2.4% vs 5.6% expected

NOW +15.5% vs 7.3% expected

IBM -6.6% vs 6.1% expected

GOOGL +1.7% vs 5.8% expected

INTC -6.7% vs 8.1% expected

FCX +6.9% vs 6.2% expected

BMY +0.3% vs 5.6% expected

MRK +1.4% vs 5.0% expected

PEP -4.9% vs 3.4% expected

PG -3.7% vs 3.5% expected

GILD -2.8% vs 4.0% expected

SLB -1.7% vs 5.0% expected

ABBV +3.2% vs 4.7% expected

CL +1.3% vs 3.7% expected

Overall, there were 17 out of 26 that stayed within the expected range.

Unusual Options Activity

TSLA, PLTR, MSTR, BAC and UBER 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.