Option Price Fluctuations and Earnings Summary for January 12 to 16

Earnings Season Highlights: Key Reports and Market Impact

This week marks a significant phase in earnings season, with major banks and technology companies set to release their financial results. Notable names such as Bank of America (BAC), Taiwan Semiconductor (TSM), JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), and Delta Airlines (DAL) are all scheduled to report, making it a crucial period for market watchers.

Understanding Implied Volatility Before Earnings

Leading up to earnings announcements, implied volatility tends to rise as investors remain uncertain about the upcoming results. This uncertainty drives increased demand for options, which in turn pushes up both implied volatility and option prices.

Related Insights from Barchart

Once earnings are released, implied volatility typically returns to more typical levels.

Estimating Expected Price Moves

To gauge the anticipated price movement for these stocks, you can check the option chain and sum the prices of the at-the-money call and put options, using the first expiration date after the earnings release. While this method is a rough estimate, it provides a reasonable expectation of potential price swings.

Weekly Earnings Calendar and Expected Moves

• Monday: No significant reports
• Tuesday:
  • Delta Airlines (DAL): 6.8%
  • JP Morgan (JPM): 3.8%
• Wednesday:
  • Bank of America (BAC): 4.0%
  • Citigroup (C): 4.5%
  • Wells Fargo (WFC): 4.9%
• Thursday:
  • Goldman Sachs (GS): 4.4%
  • Morgan Stanley (MS): 4.3%
  • Taiwan Semiconductor (TSM): 5.3%
• Friday:
  • PNC Financial Services (PNC): 3.8%

Option Strategies for Earnings Season

Traders can use these projected moves to inform their strategies. Those with a bearish outlook might consider selling bear call spreads beyond the expected range. Bullish investors could look at selling bull put spreads outside the anticipated move, or even selling naked puts if they are comfortable with higher risk. For those expecting minimal movement, iron condors may be suitable, with short strikes placed outside the expected range for added safety.

It is advisable to use risk-defined strategies and keep trade sizes modest during earnings season. If a stock moves more than anticipated and a trade results in a total loss, it should not impact your portfolio by more than 1-3%.

Identifying Stocks with Elevated Implied Volatility

Barchart’s Stock Screener can help identify other stocks exhibiting high implied volatility. Applying the following filters can narrow down the search:

• Total call volume exceeding 5,000
• Market capitalization above $40 billion
• IV Rank greater than 40%

The screener will generate a list of stocks sorted by their IV Rank.

Further Reading and Unusual Options Activity

For more details on finding option trades during earnings season, refer to the linked article below.

Unusual Options Activity

Last week, companies such as NFLX, GOOG, OPEN, OKLO, APP, and INTC saw notable options activity. Additional stocks with unusual options trading are also highlighted below.