It’s a quiet week on the earnings front with only a handful of big name companies reporting. This week we have Crowdstrike (CWRD), Salesforce (CRM), Snowflake (SNOW) and Marvell Technologies (MRVL) as the top stocks to watch.
Before a company reports earnings, implied volatility is usually high because the market is uncertain 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 falls back to normal levels.
Let’s take a look at the expected range for these stocks. To calculate the expected range, look at the option chain and add the price of the at-the-money put option and the at-the-money call. Use the first deadline after the winning date. Although this approach is not as accurate as a detailed calculation, it works as a fairly accurate estimate.
monday
Nothing remarkable
tuesday
CRWD – 7.5%
PDD – 9.6%
wednesday
SNOW – 9.3%
Thursday
CRM – 5.5%
DELL – 6.6%
MRVL – 7.8%
friday
Nothing remarkable
Options traders can use these expected moves to structure trades. Bearish traders may look at selling bearish call spreads outside the expected range.
Bullish traders can sell bullish put spreads outside the expected range, or look at bare trades for those with a higher risk tolerance.
Neutral traders can look at iron condors. When trading iron condors above 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 bigger than expected move and the trade suffers a total loss, it should not have more than a 1-3% impact 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 provider screen with the following filters:
- Total call volume: Greater than 2,000
- Market value: Greater than 40 billion
- IV Percentile: Greater than 50%
This screen produces the following results sorted by IV Percentile.
You can refer to this article for details on how to find option trades for this winning season.
Last Week’s Earnings Moves
Last week we had only one company report interest income:
ZM -0.1% against 9.2% expected
ADSK -6.9% vs. 6.6% expected
BBY -0.7% vs. 7.1% expected
DKS + 16.5% vs. 9.5% expected
LOW -3.1% vs. 4.4% expected
MDT + 4.6% vs. 3.5% expected
NVDA -2.5% vs. 7.8% expected
OF -3.1% against 4.7% expected
Overall, there were 5 out of 8 that remained in the expected range.
Changes in Open Interest
TSLA, CHPT, AAL, KHC, GM, KVUE, NVDA and UBER saw some of the biggest changes in open interest last week.
Other stocks with large changes in open interest are shown below:
Please remember that options are risky, and investors can lose 100% of their investment. This article is for educational purposes only and not a business recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
More Stock Market News from Barchart
At the date of publication, Gavin McMaster did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
