Friday, November 1st 2019
Earnings Season Report: This Week 3 Has Been Better for Options Owners
ORATS watches the implied earnings move earnings versus the actual move. Options prices imply an ‘earn move’, that can be quantified.
ORATS tracks the implied earnings move in a stock versus the actual move during earnings season. Week 3 of the October earnings season has been better for options owners than the previous two weeks, with 38% of companies posting earnings moves greater than expected and actual moves divided by implied moves of 103%. Historically, weeks 3 and 4 have been kinder to options holders, while weeks 1 and 2 have been weak. Next week is expected to be a wild one for companies reporting earnings.
Earnings season starts two weeks after quarter-end, at either mid-January, April, July or October, and runs for six weeks. Currently, we are wrapping up week three of the October earnings season. ORATS watches the implied earnings move in a stock versus the actual move. Options prices imply an ‘earn move’, either up or down, in the price of a stock that can be quantified. Comparing the implied moves to the actual moves shows how options owners are faring and can point to patterns as we progress through earnings season.
To date with 50% of companies we track reporting, this third week in October earnings season has been very different the previous two.
Putting some numbers up for comparison:
October’s week 1 saw only 26% of companies post earnings moves greater than expected. Week 2 had only 30%. This week 3 had 38% winners.
The magnitudes of the earnings moves have been much greater than the last two weeks as well. Whereas the actual move vs the implied move during this week was 103% (a profit for owners) weeks 1 and saw returns of only 63% and 82%.
Historically, this week 3 and especially next week 4 has been much kinder to options holders with win rates at 44% and 46%, and actual moves divided by implied moves of 103% and 108%. Weeks 1 and 2 have been historically weak, and that is what we saw this season.
If history is any judge, next week should be a wild one for companies reporting earnings.
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