Earnings season is in full swing, with heavy hitters like Palantir (PLTR), Walt Disney (DIS), Robinhood Markets (HOOD), Uber Technologies (UBER), Shopify (SHOP), Datadog (DDOG), and Airbnb (ABNB) all slated to report this week.
Prior to an earnings report, implied volatility tends to soar as market uncertainty prevails. Speculators and hedgers drive demand for options, causing a surge in implied volatility and option prices.
Following an earnings release, implied volatility typically reverts to normal levels.
Let’s delve into the projected ranges for these stocks. By summing the prices of the at-the-money put and call options from the option chain with the earliest expiry date following the earnings report, we can estimate the expected range – providing a relatively accurate estimation.
Monday
PLTR – 14.7%
WMB – 3.0%
TSN – 5.6%
Tuesday
DIS – 6.4%
DDOG – 11.2%
OXY – 4.0%
BP – 4.5%
TWLO – 11.1%
ANET – 9.3%
Wednesday
UBER – 8.4%
SHOP – 11.8%
ARM – 11.7%
ET – 3.4%
TTD – 11.5%
BUD – 3.2%
ABNB – 8.1%
HOOD – 13.8%
Thursday
PBR – 5.8%
WBD – 10.3%
AKAM – 8.4%
RBLX – 13.8%
Friday
ENB – 3.9%
Traders can leverage these projected moves to structure their trades. Bearish traders might consider selling bear call spreads beyond the expected range.
Bullish traders could sell bull put spreads outside the anticipated range or explore naked puts for those with a higher risk appetite.
Neutral traders may opt for iron condors, ensuring the short strikes lie beyond the projected range when trading over earnings.
Opting for risk-defined strategies and maintaining a modest position size is advisable when trading options during earnings. Any trade experiencing a complete loss due to an unexpectedly large stock movement should ideally not exceed a 1-3% impact on your portfolio.
Stocks With High Implied Volatility
Barchart’s Stock Screener can identify stocks with elevated implied volatility using filters such as total call volume, market cap, and IV Percentile.
Running the stock screener with these filters highlights numerous stocks exhibiting heightened volatility, primarily driven by earnings.
For more insights on finding option trades during this earnings season, refer to this article.
Last Week’s Earnings Moves
Comparing actual versus expected moves from last week reveals:
DPZ +5.6% vs 5.8% expected
MSTR -17.6% vs 11.6% expected
Out of 39 instances, 22 remained within the projected range.
Unusual Options Activity
Noteworthy unusual options activities traced in AAPL, COIN, NVDA, DKNG, FLSR, and UPS last week.
Other stocks with peculiar options activities are detailed below:
Reminder: Options carry risks, potentially leading to a full loss of investment. This content serves educational purposes exclusively; ensure to conduct personal research and seek advice from a financial advisor before making investment decisions.