It’s another massive week on the earnings front with 39 companies of interest reporting. That’s not quite as many as last week’s 52, but it’s still a lot and could be potentially market shaping this week.

Stock of interest reporting earnings this week include Apple (AAPL), Amazon (AMZN), Advanced Micro Devices (AMD), Coinbase (COIN), Super Micro Computer (SMCI), Paypal (PYPL) and Starbucks (SBUX).

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

DPZ – 5.8%

MSTR – 11.6%

ON – 10.0%

Tuesday

AMZN – 7.6%

AMD – 8.6%

SMCI – 14.7%

PYPL – 9.1%

SBUX – 6.4%

PINS – 13.2%

KO – 2.2%

CCJ – 7.6%

LLY – 5.7%

MCD – 2.9%

MMM – 4.8%

CLX – 5.4%

Wednesday

PFE – 4.3%

GOLD – 4.3%

CVNA – 16.7%

QCOM – 6.8%

DVN – 4.6%

FSLR – 8.0%

CVS – 5.0%

Z – 10.1%

MGM – 7.0%

KHC – 3.9%

ALB – 7.5%

EBAY – 6.1%

MA – 3.6%

Thursday

AAPL – 4.2%

COIN – 12.5%

DKNG – 10.8%

SQ – 11.8%

MRNA – 8.7%

FTNT – 10.9%

NET – 13.4%

COP – 3.4%

SO – 2.1%

AMGN – 4.8%

EXPE – 9.5%

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 thestock screenerwith the following filters:

• Total call volume: Greater than 5,000
• Market Cap: Greater than 40 billion
• IV Percentile: Greater than 70%

This screener produces the following results sorted by IV Percentile. As you can see, there are way too many stocks with high IV Percentile to include in this screenshot.

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

Last Week’s Earnings Moves

Last week’s actual versus expected moves are shown below:

VZ -4.7% vs 4.1% expected

TFC +3.4% vs 4.6% expected

NUE -8.9% vs 4.5% expected

CLF -11.0% vs 7.7% expected

GOOGL +10.2% vs 6.0% expected

V +0.3% vs 3.8% expected

TSLA +12.1% vs 9.7% expected

PEP -3.0% vs 2.9% expected

DHR +7.2% vs 5.0% expected

GE +8.3% vs 5.6% expected

TXN +5.6% vs 5.6% expected

PM +3.8% vs 3.5% expected

RTX -0.2% vs 4.2% expected

NEE +1.4% vs 3.6% expected

UPS +2.4% vs 5.5% expected

LMT -0.3% vs 3.7% expected

FCX +2.0% vs 5.0% expected

SPOT +11.4% vs 10.1% expected

GM +4.4% vs 5.6% expected

HAL -0.3% vs 4.3% expected

ENPH -5.6% vs 14.2% expected

META -10.6% vs 9.1% expected

IBM -8.3% vs 5.8% expected

NOW -4.0% vs 7.2% expected

LRCX +1.9% vs 6.2% expected

T +1.9% vs 4.8% expected

BA -2.9% vs 5.6% expected

CME -1.9% vs 3.1% expected

VALE -2.5% vs 3.7% expected

F +0.7% vs 6.4% expected

HUM -3.7% vs 5.5% expected

MSFT +1.8% vs 4.8% expected

MRK +2.9% vs 3.5% expected

CAT -7.0% vs 5.6% expected

INTC -9.2% vs 7.6% expected

HON -0.9% vs 3.8% expected

BMY -8.5% vs 4.2% expected

GILD +0.2% vs 3.8% expected

MO +1.4% vs 2.8% expected

VLO +0.1% vs 4.2% expected

COF +0.2% vs 5.2% expected

NEM +12.5% vs 5.1% expected

DOW -1.0% vs 3.7% expected

RCL +0.5% vs 7.6% expected

SNAP +27.6% vs 20.2% expected

LUV -7.0% vs 6.4% expected

XOM -2.3% vs 2.9% expected

CVX +0.4% vs 3.1% expected

ABBV -4.6% vs 4.5% expected

CL +1.9% vs 2.9% expected

Overall, there were 31 out of 50 that stayed within the expected range.

Unusual Options Activity

MSFT, META, INTC, GOOGL, NVDA and SNAP 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.