Option Volatility And Earnings Report For July 20-24
Option Volatility And Earnings Report For July 20-24.
The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Earnings season ramps up this week with some key tech earnings on tap. This week we have Tesla (TSLA), Intel (INTC), Alphabet (GOOGL), GE Verona (GEV), International Business Machines (IBM), ServiceNow (NOW), Freeport-Mcmoran (FCX) and American Express (AXP) 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.
Intel Stock Is Down, But Put Premiums are High - Put Short Sellers Love the High Yields
Netflix Tanks on Lower Margins and Flat Outlook - Time to Buy NFLX?
Newmont Stock Suddenly Offers a Double-Sided Debit Trade on U.S.-Iran Tensions and Upcoming Earnings
Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now!
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.
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.
We can use Barchart's Stock Screener to find other stocks with high implied volatility.
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.
Overall, there were 11 out of 13 that stayed within the expected range. 6 out of 13 moved higher following their announcement.
SPCX, MSTR, NFLX, META and TSLA all experienced unusual options activity last week.
