We are on the cusp of a whirlwind week in the financial markets as 52 notable companies are gearing up to release their earnings reports. This unprecedented flurry of activity is bound to send shockwaves through the market, potentially altering its trajectory in significant ways. Among the powerhouse names scheduled for reports are Tesla (TSLA), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOGL), Exxon Mobil (XOM), Visa (V), Merck (MRK), and Boeing (BA).
Prior to an earnings report, implied volatility tends to soar as the market brims with uncertainty. This heightened volatility triggers a surge in demand for the company’s options, consequently driving up their prices.
Post-earnings announcement, implied volatility typically retraces to its usual levels.
To gauge the expected range for these stocks, one can turn to the option chain. By summing up the prices of the at-the-money put and call options, using the first expiry date after the earnings date, a rough yet quite reliable estimate can be obtained.
Anticipated Movements Throughout the Week
On Monday, anticipate:
- VZ – 4.1%
- TFC – 4.6%
- NUE – 4.5%
- CLF – 7.7%
Tuesday’s projections include movements for GOOGL, V, TSLA, PEP, DHR, GE, TXN, PM, RTX, NEE, UPS, LMT, FCX, SPOT, GM, HAL, ENPH.
Wednesday’s expected shifts concern META, IBM, NOW, LRCX, T, BA, CME, VALE, F, HUM.
Thursday’s watchlist features MSFT, AMZN, MRK, CAT, INTC, HON, BMY, GILD, MO, VLO, COF, NEM, DOW, RCL, PINS, SNAP, LUV.
Lastly, on Friday, keep an eye on XOM, CVX, ABBV, CL.
These projected movements provide valuable insights for option traders looking to craft strategic trades. Bearish traders might explore bear call spreads beyond the expected range, while bullish traders could consider bull put spreads or even venture into naked puts for those embracing higher risk tolerance. Neutral traders might find iron condors appealing, especially by keeping the short strikes outside the anticipated range.
A prudent approach to trading options around earnings involves sticking to risk-defined strategies and maintaining a modest position size. In the event of an unexpectedly large price swing causing a full loss, the impact on the portfolio should ideally be capped at 1-3%.
Stocks With Elevated Implied Volatility
One can leverage Barchart’s Stock Screener to pinpoint other stocks with soaring implied volatility. By applying filters based on total call volume, market cap, and IV Percentile, intriguing results disclosing high IV Percentile stocks are unveiled, underscoring the breadth of opportunity in the market.
For those curious about last week’s earnings moves, the actual versus expected shifts provide a telling narrative. Among the 19 stocks in focus, 13 managed to stay within the predicted range, offering valuable real-world insights into the accuracy of projections.
Spotlight on Unconventional Options Activity
A roster of companies, including DKNG, ARM, AMZN, AMD, NVDA, TSLA, and SMCI, witnessed uncommon options activity last week, hinting at intriguing possibilities for savvy investors. Further exploration into other stocks experiencing unusual options activity can unearth hidden gems for those willing to dive deep into the market’s undercurrents.
Caution remains paramount when dabbling in options, as fortunes and risks intertwine. While this article serves as an educational tool, always conduct thorough due diligence and consult with a financial advisor before embarking on any investment journey.