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Option Volatility and Earnings Report for December 1 - 5

ⓘ This article is third-party content and does not represent the views of this site. We make no guarantees regarding its accuracy or completeness.

Earnings season is starting to wind down but we still have some big names due to report Q3 numbers. 

This week, we have Salesforce (CRM), Crowdstrike (CRWD), Marvell Technologies (MRVL), Snowflake (SNOW), Dollar Tree (DLTR) and Dollar General (DG) all set to report.

 

Before a company reports earnings, implied volatility is usually high because the market is unsure 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 drops back down to normal levels. 

Let’s take a look at the expected range for these stocks. To calculate the expected range, look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. Use the first expiry date after the earnings date. While this approach is not as accurate as a detailed calculation, it does serve as a reasonably accurate estimate.

 

Monday

CRDO – 17.3%

MDB – 13.3%

 

Tuesday

CRWD – 7.3%

MRVL – 11.8%

OKTA – 11.4%

 

Wednesday

CRM – 7.8%

DLTR – 8.9%

SNOW – 10.3%

 

Thursday

DG – 8.4%

DOCU – 9.9%

ULTA – 8.7%

 

Friday

Nothing of note

 

Option traders can use these expected moves to structure trades. Bearish traders can look at selling bear call spreads outside the expected range.

Bullish traders can sell bull put spreads outside the expected range, or look at naked puts for those with a higher risk tolerance. 

Neutral traders can look at iron condors. When trading iron condors over 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 larger than expected move and the trade suffers a full loss, it should not have more than a 1-3% effect 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 stock screener with the following filters:

  • Total call volume: Greater than 5,000
  • Market Cap: Greater than 40 billion
  • IV Rank: Greater than 40%

This screener produces the following results sorted by IV Rank. 

A screenshot of a computer

AI-generated content may be incorrect.

You can refer to this article for details of how to find option trades for this earnings season. 

Last Week’s Earnings Moves

BABA -2.3% vs 7.2% expected

DELL +5.8% vs 9.4% expected

ZS -13.0% vs 9.9% expected

WDAY -7.9% vs 8.3% expected

DE -5.7% vs 5.5% expected

 

Overall, there were 3 out of 5 that stayed within the expected range. Only 1 out of 5 moved higher following their announcement.

Unusual Options Activity

NEM, RIVN, VALE, COIN, TWLO, GOOG and BMY all experienced unusual options activity last week.

Other stocks with unusual options activity are shown below:

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.


On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

 

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