U.S. publicly traded companies are required to release quarterly earnings reports, which often lead to significant stock market volatility. This earnings season occurs four times a year and affects all companies, from large tech firms to smaller biotech firms.
Recently highlighted examples include Kratos Defense & Security (KTOS), which historically averages a 10% movement after earnings, but the options market expected over 15%. In contrast, MP Materials (MP) usually sees a 9% move, with options pricing in a greater than 20% expectation. Both cases demonstrated mispricings that led traders to stand down.
Finally, Groupon (GRPN) presented a compelling setup with historical earnings movements averaging 15% to 20%, while the options market was pricing a single-digit movement. This discrepancy allowed traders to recognize potential opportunities based on data rather than predictions.
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