Earnings season is in full swing, with some major companies set to report their quarterly results this week. Among the notable names are Tesla, Alphabet, Intel, Verizon, Freeport McMoran, and Newmont Mining. Before a company announces its earnings, the implied volatility of its options tends to be high as the market anticipates the outcome. This increased demand for options drives up their prices.
After the earnings report is released, implied volatility usually decreases to normal levels. To gauge the expected range of a stock’s movement post-earnings, one can look at the at-the-money put and call options prices for the nearest expiry date after the earnings announcement. While this method is not as accurate as a detailed calculation, it provides a rough estimate of the potential price movement.
Throughout the week, we can expect significant moves from companies like Verizon, Coca-Cola, General Motors, Tesla, Google, Intel, and more. Option traders can utilize these expected moves to structure their trades. Bearish traders may consider selling bear call spreads, while bullish traders can sell bull put spreads or explore naked puts. Neutral traders might look at iron condors, keeping the short strikes outside the expected range.
It’s crucial to employ risk-defined strategies and maintain small position sizes when trading options during earnings season. A full loss on a trade should not exceed 1-3% of your portfolio to manage risk effectively.
For traders looking for stocks with high implied volatility, using a stock screener with filters like total call volume, market capitalization, and IV percentile can help identify potential opportunities. Last week’s earnings moves saw some companies falling short of expectations while others exceeded them. Unusual options activity was observed in stocks like Tesla, ExxonMobil, Interactive Brokers, Coinbase, and Robinhood.
Remember that options trading carries risks, and investors can lose their entire investment. This article serves as educational content and not a trade recommendation. Always conduct thorough research and consult with a financial advisor before making investment decisions.
