Option Volatility And Earnings Report For November 11 - 15

There were some impressive earnings movers last week lead by Applovin’s (APP) 46% rally. CVS Corp (CVS), Palantir (PLTR) and Gilead Sciences (GILD) also had big rallies, while Super Micro Computer’s (SMCI) woes continued with an 18% slide.

 This week, we have Home Depot (HD), Alibaba (BABA), Disney (DIS), Shopify (SHOP) and Spotify (SPOT) all set to report among some other important names.

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

MNDY – 13.3%

 

Tuesday

SHOP – 13.2%

OXY – 4.3%

HD – 4.1%

CAVA – 12.1%

ONON – 10.9%

SPOT – 9.7%

SE – 11.9%

SU – 3.9%

 

Wednesday

CSCO – 5.3%

 

Thursday

DIS – 6.9%

JD – 8.9%

 

Friday

BABA – 6.3%

 

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 80%

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 actual versus expected moves are shown below:

 

PLTR +23.5% vs 13.3% expected

WYNN -9.3% vs 6.2% expected

AIG -1.2% vs 5.6% expected

O -0.8% vs 3.7% expected

DVN +1.7% vs 6.2% expected

SMCI -18.1% vs 27.2% expected

ARM +4.1% vs 11.9% expected

ET -0.1% vs 3.9% expected

QCOM -0.1% vs 8.8% expected

CVS +11.3% vs 7.5% expected

NVO -4.3% vs 7.0% expected

APP +46.3% vs 14.4% expected

GILD +6.8% vs 4.5% expected

ALB +3.5% vs 10.5% expected

RIVN +5.4% vs 14.9% expected

GOLD +0.3% vs 5.4% expected

WBD +11.8% vs 10.3% expected

DKNG +3.0% vs 10.7% expected

AFRM -4.7% vs 17.3% expected

CCJ +4.6% vs 8.6% expected

SQ -0.9% vs 11.2% expected

MRNA -3.0% vs 13.0% expected

PINS -14.0% vs 14.1% expected

HAL -3.1% vs 6.0% expected

DDOG +1.1% vs 10.2% expected

PBR +0.6% vs 4.2% expected

ABNB -8.7% vs 8.9% expected

TTD -5.6% vs 10.7% expected

EXPE +3.8% vs 9.8% expected

NET -4.6% vs 12.5% expected

ANET -7.1% vs 9.5% expected

Overall, there were an impressive 25 out of 31 that stayed within the expected range.

Unusual Options Activity

TSLA, COIN, PLTR, SMCI, UPST, MRNA and DKNG 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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On the date of publication, Gavin McMaster had a position in: BABA. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.