Option Volatility And Earnings Report For October 27 - 31

Earnings are going to be front and center of everyone’s attention this week, with five of the Mag Seven reporting. This week we have Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (META),  Apple (AAPL), Amazon (AMZN), Coinbase (COIN), PayPal (PYPL), Starbucks (SBUX) and Exxon Mobil (XOM) 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

Nothing of note

Tuesday

PYPL – 8.6%

UNH – 6.4%

UPS – 7.3%

V – 3.6%

STX – 10.9%

NEE – 3.7%

Wednesday

GOOGL – 6.7%

META – 7.1%

MSFT – 4.9%

BA – 5.6%

VZ – 3.7%

CMG – 8.8%

CVNA – 16.1%

SBUX – 7.8%

EBAY – 6.7%

Thursday

AAPL – 4.1%

AMZN – 6.7%

COIN – 9.2%

MSTR – 6.8%

BMY – 5.5%

LLY – 6.0%

MRK – 4.5%

WDC – 10.3%

RBLX – 14.3%

MO – 3.6%

GILD – 5.2%

Friday

XOM – 2.9%

CVX – 3.1%

ABBV – 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 60%

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

NFLX -10.1% vs 7.9% expected

KO +4.1% vs 2.9% expected

GM +14.9% vs 6.5% expected

GE +1.3% vs 6.5% expected

COF +1.5% vs 6.4% expected

TXN -5.6% vs 7.3% expected

PM -3.8% vs 5.9% expected

TSLA +2.3% vs 7.9% expected

BSX +4.0% vs 4.9% expected

T -1.9% vs 4.4% expected

VRT -1.8% vs 11.4% expected

IBM +1.9% vs 7.2% expected

LRCX +4.5% vs 7.8% expected

GEV -1.6% vs 8.4% expected

KMI -4.8% vs 3.4% expected

INTC +3.4% vs 12.1% expected

F +12.2% vs 6.1% expected

FCX +1.1% vs 5.5% expected

NEM +2.2% vs 7.1% expected

BX -4.2% vs 5.6% expected

PG +0.9% vs 3.4% expected

Overall, there were 16 out of 21 that stayed within the expected range. 13 out of 21 moved higher following their announcement.

Unusual Options Activity

BAC, RGTI, INTC, DIS, WBD and DAL and 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.