July 22 Options Volatility and Earnings Report

Before a company releases an earnings report, implied volatility is typically high because the market is unsure of the outcome of the report. Speculators and hedgers create huge demand for the company’s options, which increases implied volatility and therefore the option price.

Following the announcement of earnings, implied volatility typically declines to normal levels.

Let’s look at the expected range for this stock. To calculate the expected range, search for the option chain and add the price of the at-the-money put and at-the-money call. Use the first expiration date After earnings date. While this approach is not as accurate as the detailed calculations, it does serve as a fairly accurate estimate.

Monday

TFC – 4.3%

WZ – 3.6%

Tuesday

ENPH – 12.8%

FCX-5.3%

GE-6.6%

CEO – 5.8%

GOOGL-6.4%

KO – 2.3%

LMT-3.3%

MSFT-5.6%

SPOT-10.9%

TSLA-9.3%

TXN-4.6%

UPS – 5.7%

In – 4.0%

Wednesday

CMG-8.3%

EBAY-7.4%

P – 6.5%

IBM-5.9%

NEM-5.4%

NOW – 6.9%

T-4.3%

Goods and services tax – 12.6%

WM – 3.5%

Thursday

ABBV-4.1%

DOW-3.5%

HON-3.4%

LUV-6.5%

RCL-3.3%

RTX Index – 4.5%

WOL – 4.5%

Friday

BMY-5.4%

Kl – 3.2%

MMM-5.4%

XOM-3.7%

Options traders can use these expected moves to structure trades. Bearish traders may consider selling bearish call spreads outside the expected range.

Growth investors may want to sell put spreads outside the expected range or consider unsecured puts if they have a higher risk tolerance.

Neutral traders can look at iron condors. When trading iron condors over profits, it is best to keep short strikes outside the expected range.

When trading over profits, it is best to stick to risk-defined strategies and keep your position size small. If the stock makes a bigger than expected move and you lose the trade completely, it should not affect your portfolio by more than 1-3%.

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 scanner with the following filters:

• Total number of connections: over 2000
• Market capitalization: over 40 billion
• Percentile IV: greater than 70%

This screening program generates the following scores sorted by the 4th percentile.

For detailed information on finding options trades for this earnings season, check out this article .

Changes in earnings last week

Below are last week’s actual and expected moves:

GS +2.6% vs. expected 3.8%

BLK -0.6% vs. expected 3.3%

UNH +6.5% vs. expected 4.7%

BAC +5.4% vs. expected 3.9%

MS +0.9% vs. expected 3.8%

SCHW -10.2% vs. expected 5.1%

PNC +4.7% vs. expected 4.4%

ASML -12.7% vs. expected 6.8%

JNJ +3.7% vs. expected 2.7%

USB +4.6% vs. expected 4.3%

KMI +2.5% vs. expected 3.1%

LVS -8.7% vs. expected 4.9%

UAL -1.2% vs. expected 8.7%

TSM -4.9% vs. expected 7.5%

NFLX -9.1% vs. 8.8% expected

ABT -4.4% vs. expected 4.3%

ISRG +6.7% vs. expected 5.4%

BX -2.3% vs. expected 4.5%

DHI +10.1% vs. expected 4.9%

DPZ -13.6% vs. expected 5.5%

AXP -2.7% vs. expected 4.8%

SLB +2.0% vs. expected 4.0%

TRV -7.8% vs. expected 4.0%

HAL -5.6% vs. expected 3.5%

Overall, only 9 of 24 were within the expected range.

Unusual option activity

CVNA, TFC, CRWD, SPWR, NVDA and PM saw unusual options activity last week.

Here are some other stocks with unusual option activity:

Remember that options are risky and investors can lose 100% of their investment. This article is for educational purposes only and does not constitute a trading recommendation. Remember to always conduct your own due diligence and consult your financial advisor before making any investment decisions.

At the date of publication, Gavin McMaster did not hold (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For further information, please see Barchart’s Disclosure Policy here.