After a tumultuous week of earnings reports, the stock market is gearing up for another round of the rollercoaster ride of volatility. While the previous week may have resembled a bustling metropolis, this week presents a slightly quieter yet no less intriguing landscape, with a plethora of stocks poised to reveal their quarterly performances.
Among the companies in the spotlight for this week are Palantir (PLTR), Super Micro Computer (SMCI), Robinhood Markets (HOOD), Disney (DIS), Uber Technologies (UBER), Caterpillar (CAT), Eli Lilly (LLY), and Amgen (AMGN).
Before a company reports its earnings, implied volatility tends to soar like a hawk in the sky, as uncertainty looms large over the potential outcomes. This heightened uncertainty prompts speculators and hedgers to flock to the options market, driving up implied volatility and subsequently, the price of options.
However, post-earnings announcement, the storm of implied volatility typically subsides, leading back to normalcy.
Let’s delve into the anticipated fluctuations for these stocks this week. By examining the option chain, an estimate of the expected range can be derived by summing up the prices of the at-the-money put option and call option for the first expiry date after the earnings report. While this method may not provide pinpoint accuracy, it does offer a reasonably close approximation.
Forecast for the Week:
Monday
PLTR – 13.6%
O – 3.2%
TSN – 6.8%
Tuesday
SMCI – 13.8%
RIVN – 13.4%
UBER – 8.8%
… (detailed list continues for each day of the week)
Option traders can utilize these projected moves to structure their trades. Bearish traders may consider selling bear call spreads beyond the expected range, while bullish traders might opt for selling bull put spreads outside the projected range or explore naked puts for those with a higher risk appetite.
For neutral traders, iron condors could be an enticing option. When employing iron condors during earnings season, it is prudent to position the short strikes outside the anticipated range.
When navigating the options market during earnings releases, adhering to risk-defined strategies and maintaining a modest position size is advisable. In the event of a larger-than-expected stock movement leading to a complete loss on a trade, the impact on the portfolio should ideally not exceed 1-3%.
Highlights of Last Week’s Earnings Movements:
Details of the actual versus expected price movements for a range of stocks from the previous week.
… (detailed list showcasing actual vs. expected moves for various stocks)
Unmasking Unusual Options Activity:
Stocks like INTC, AMZN, MSFT, TSLA, MU, and PG experienced atypical options activity in the previous week. The unconventional options activity extended to several other stocks as well.
… (image or table displaying stocks with unusual options activity)
As with all things investing, options trading carries risks, and investors must acknowledge the potential of losing their entire investment. This article serves as a source of education, not trade recommendations. Always conduct thorough research and consult with a financial advisor before making investment decisions.
