Options Volatility and Implied Earnings Moves Today, September 03, 2024

Earnings Implied Moves and Expected Volatility

Traders look at the implied volatility of options to gauge the market's expectations for price movement in a stock. Higher implied volatility suggests that the market expects more price movement, while lower implied volatility indicates less expected movement. Traders combine expected volatility and earnings announcements to make informed decisions. Earnings announcements can have a significant impact on a stock's price, and options implied volatility can give traders an idea of how much the stock is expected to move after earnings are released. For example, if a stock has high implied volatility before earnings, it suggests that the market expects a large move in the stock price after earnings are released. This could be due to several factors, such as a significant earnings beat or miss, or a change in the company's outlook. Traders can use this information to position themselves for potential price movements. For example, if a stock has high implied volatility before earnings, a trader could buy a call option if they expect the stock to rise after earnings, or a put option if they expect the stock to fall.

Important Observations for Today's Volatility

- Implied volatility is elevated across the board today, with most sectors showing higher-than-average readings. - Some of the highest implied volatility readings are in the tech sector, particularly in semiconductor stocks. - This suggests that the market is expecting significant price movements in these stocks following their earnings announcements.

IV Percentile and Expected Move

- The IV percentile is a measure of how high the implied volatility is relative to its historical levels. A higher IV percentile indicates that the implied volatility is higher than it has been most of the time. - The expected move is a measure of how much the stock is expected to move, based on the implied volatility.

Conclusion

Traders should be aware of the potential for large price movements in stocks with high implied volatility. By understanding the factors that affect implied volatility, traders can make informed decisions about how to position themselves for potential price movements, including when earnings are coming up.