As the earnings season trots towards a simmer, the horizon may appear less dazzling with fewer corporate juggernauts set to unveil their financial narratives this week. Yet, amidst this tempered spectacle, a handful of key players emerge – Salesforce (CRM), Snowflake (SNOW), Lowe’s (LOW), and Zoom (ZM).
Prior to the earnings razzmatazz, the cloak of implied volatility unfurls its tendrils as uncertainty enwraps the market. Speculators and hedgers, akin to moths drawn to a flame, fuel a frenzied demand for options, shrouding the stocks in heightened implied volatility, and consequently, inflating option prices.
After the earnings encore, the shroud of implied volatility typically retreats to more modest levels, akin to the dusk settling over a bustling market square.
Let’s peer through the kaleidoscope of expected ranges for these select stocks. To discern the expected range, delving into the option chain unveils a simple arithmetic dance – adding the prices of the at-the-money put and call options for the first expiration post the earnings extravaganza. While this method musters a rough estimate, it stands as a dependable guidepost.
Monday beckons, adorned with various dancers in the options arena:
LI – 10.5%
ZM – 8.2%
U – 15.0%
FIS – 7.4%
DPZ – 6.0%
WDAY – 8.8%
Tuesday saunters in, with its own array of performers:
DVN – 5.1%
FSLR – 9.6%
EBAY – 6.3%
LOW – 4.0%
Wednesday pirouettes gracefully, showcasing its stars:
SNOW – 10.4%
BIDU – 7.7%
CRM – 7.3%
TJX – 4.0%
Thursday strides in with its own charismatic cast:
DELL – 9.4%
CELH – 12.1%
ZS – 11.2%
BUD – 3.4%
TD – 4.0%
ADSK – 6.6%
Friday, alas, bears no noteworthy performances.
Option traders, akin to choreographers crafting intricate dances, can utilize these anticipated movements to sculpt their strategies. Bearish traders may contemplate selling bear call spreads beyond the anticipated range, while bullish traders might sway towards selling bull put spreads outside the spectrum or dabbling in naked puts for the daring souls.
Neutral traders, embracing a zen-like balance, may find solace in iron condors. However, when dancing this complex tango over earnings, it is wise to ensure the short strikes pirouette outside the expected range.
When venturing into the realm of options during earnings season, anchoring oneself to risk-defined strategies and modest position sizes is akin to fashioning a sturdy mast amidst turbulent financial seas. A prudent resolve dictates that in the event of a gruesomely larger-than-life move by the stock, resulting in a total trade loss, the impact on your portfolio should dwindle in the realm of 1-3%.
Delving into fortunetelling by scanning for stocks adorned with high implied volatility unveils a treasure trove of potential gems. Barchart’s Stock Screener serves as the divining rod, guiding traders towards stocks bedecked in ample volatility garb.
Allusions to last week’s earnings spectacle bring to mind a lone troubadour amidst a motley crew:
WMT +3.2% vs 4.2% expected
PANW -28.4% vs 10.1% expected
MDT +1.7% vs 3.8% expected
HD +0.1% vs 4.1% expected
FANG +1.0% vs 3.5% expected
O +0.4% vs 4.7% expected
NVDA +16.4% vs 11.1% expected
RIVN -25.6% vs 15.2% expected
MRO +1.4% vs 5.6% expected
SU -0.2% vs 3.9% expected
SQ +16.1% vs 13.1% expected
CVNA +32.1% vs 19.7% expected
VALE -0.3% vs 3.9% expected
NEM -7.6% vs 5.4% expected
MRNA +13.5% vs 9.9% expected
MELI -10.4% vs 8.0% expected
WBD -9.9% vs 10.9% expected
A tableau emerges – 9 out of 17 performers adhered to the anticipated script.
A sinuous thread of changes in open interest meanders through the tapestry of stock movements, enveloping SNAP, RIVN, PFE, MSFT, INTC, BAC, SQ, AAPL, and AMZN in unusual options activity of yore.
A pictorial odyssey unfurls below, highlighting stocks that witnessed a metamorphosis in open interest:
Embark on this financial journey with caution, dear investors, for as in all adventures, the path of options is fraught with risks wherein the gamble may lead to a complete erasure of one’s investments. This missive stands as a beacon of enlightenment, not a decree of trade. Remember always – conduct your own diligent sleuthing and confer with your monetary sentinels before venturing into the realms of investment.