Friday, April 3rd 2020
Get Ready For A Wild Earnings Season
Implied earnings moves calculated by ORATS and presented in component weighted form show investors raising expectations of volatility around earnings.
Investors are anticipating higher volatility around earnings season, as options prices reflect an average expected move of 5.6% for S&P 500 stocks, one percentage point above historical averages. ORATS calculates implied earnings moves for individual component stocks, such as AAPL, which is expected to move 7.6% after its April 28th earnings announcement.
With the start of earnings announcements two weeks away, the magnitude of expected moves in stocks is climbing according to options prices around earnings expirations.
Pictured below are the S&P 500 weighted average of components implied earnings move. Investors are grappling with earnings estimates and this is being reflected in the options market uncertainty reflected in the earnings bump in implied volatility.
The current average of 5.6% means that on average the stocks in the S&P 500 are expected to make this move on earnings announcement. That is a full percentage point above historical averages.
An example of how we isolate earning moves is with component stocks is AAPL that reports on April 28th. The first expiration after earnings is May 1st and that implied volatility is significantly higher than the previous April 24th expiration.
ORATS has a process that produces the term structure with earnings moves that fits the implied volatility most rationally. In this case the earnings move for AAPL is found to be 7.6% which produces an additional 5.7% for May 1, 4.6% for May 8, and so on.
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