The upcoming week ushers in the heart of earnings season, featuring a lineup of heavy-hitting names set to release their financial results, including the giants in banking and tech domains. Amongst these, we can anticipate updates from Taiwan Semiconductor (TSM), Bank of America (BAC), United Airlines (UAL), Netflix (NFLX), Goldman Sachs (GS), Johnson & Johnson (JNJ), and Morgan Stanley (MS).
Prior to an earnings disclosure, the realm of options witnesses heightened implied volatility, reflecting the market’s uncertainty. Speculators and hedgers jostle, fueling an upsurge in demand for company options. This demand surge propels the implied volatility, thereby elevating the price of options.
Post-earnings proclamation, there is generally a decline in implied volatility back to standard levels. Calculating the anticipated range necessitates examining the option chain; it involves adding the at-the-money put option price along with the at-the-money call option price. Select the first expiry date after the earnings date for this estimation. While not as precise as detailed calculations, this method still serves as a fairly accurate benchmark.
Anticipated Moves for the Week
Monday
GS – 3.8%
BLK – 3.3%
Tuesday
UNH – 4.7%
BAC – 3.9%
MS – 3.8%
SCHW – 5.1%
PNC – 4.4%
Wednesday
AMSL – 6.8%
JNJ – 2.7%
USB – 4.3%
KMI – 2.2%
LVS – 2.9%
UAL – 8.7%
Thursday
TSM – 7.5%
NFLX – 8.8%
ABT – 4.3%
ISRG – 5.4%
BX – 4.5%
DHI – 4.9%
DPZ – 5.5%
Friday
AXP – 4.8%
SLB – 4.0%
TRV – 4.0%
HAL – 3.5%
These projected movements assist option traders in structuring their maneuvers. Bearish traders might consider selling bear call spreads beyond the anticipated range, while bullish traders can explore bull put spreads outside the projection, or delve into naked puts for those with a higher risk appetite.
Neutral traders might find solace in iron condors. However, it is advisable to position the short strikes outside the projected range when executing iron condors during earnings seasons. Opt for risk-defined strategies and maintain modest position sizes. A trade should not affect your portfolio by more than 1-3% should it incur a full loss from a larger-than-anticipated stock movement.
Stocks Exhibiting High Implied Volatility
By leveraging Barchart’s Stock Screener, traders can uncover additional stocks characterized by elevated implied volatility. Implement the following filters:
- Total call volume: Greater than 2,000
- Market Cap: Greater than 40 billion
- IV Percentile: Greater than 70%
Executing this screening yields a catalog of results, arranged by IV Percentile.
Refer to specific resources for finer insights on optimizing option trades during this earnings period.
Performance of Last Week’s Earnings
Last week’s actual versus expected moves are juxtaposed below:
CAG -1.5% vs 4.5% expected
DAL -4.0% vs 6.3% expected
PEP +0.2% vs 2.6% expected
C -1.8% vs 3.5% expected
JPM -1.2% vs 3.2% expected
WFC -6.0% vs 3.9% expected
Out of 14 instances, 8 adhered to the projected range.
Distinctive Options Activity
Stocks such as RIVN, RKT, KMI, AA, PFE, and TSLA exhibited unconventional options movements last week, drawing curious attention. Further uncommon options activity among several other stocks is showcased prominently.
Consuming caution, it’s crucial to acknowledge the inherent risks of options trading, as investments face the peril of total loss. Delve into market education, exercise prudence, and consult financial professionals for investment deliberations.