Earnings
Thursday, December 20th 2018
Expected Move in Stocks at Earnings
Expected Move in Stocks at Earnings
Summary
ORATS calculates the expected earnings move in stocks based on options prices by adding the at-the-money call and put and subtracting the expected value of the straddle after earnings announcement. The expected straddle price after expiration is the weighted average of the possible stock prices times the value of the straddle premium at each price, based on observations of thousands of stock price moves at earnings. The value of the straddle is also dependent on the post earnings implied volatility.
ORATS calculates the expected earnings move in stocks based on options prices.
We calculate the move by adding the at-the-money call and put (the straddle) and subtract the expected value of the straddle after earnings announcement.
The expected straddle price after expiration is the weighted average of the possible stock prices times the value of the straddle premium at each price. The possible stock prices, the post earnings distribution, are based on observations of thousands of stock price moves at earnings. The value of the straddle is also dependent on the post earnings implied volatility. ORATS has methods to determine what the IV may fall to after expiration.
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