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Earnings

Monday, February 12th 2024

MarketWatch Talks to ORATS About This Earnings Season

Matt talks with Tomi Kilgore of MarketWatch to discuss this highly volatile earnings season.

Summary

Matt Amberson of ORATS discusses the current earnings season with Tomi Kilgore of MarketWatch. This season has been the most volatile in the past five years, with stocks moving more than what was implied by options pricing. The implied volatility of the market has remained low compared to previous seasons, resulting in larger actual moves. The guidance from companies is highly anticipated, and any misses or gains are closely watched.

Matt Amberson, Principal of ORATS, sat down with Tomi Kilgore of MarketWatch to discuss this earnings season.

This earnings season that started in January is the most volatile since we started this measurement five years ago. ORATS meticulously calculates the expected move as implied by the options straddle pricing in the market, adjusting the straddle by the amount expected to be left over after earnings are announced.

The actual earnings move is then compared to the implied earnings move and is tracked by earnings season. Each earnings season is about 6 weeks long.

The first table is the current earnings season. The number to keep an eye on is the 129% highlighted in green at the bottom right of the table. That represents how much more on average stocks have moved compared to what was implied. We rarely see it above 110% this far into the earnings season.

The numbers above the 129% represent the weekly average.

The second table is the last 12 earnings season average. The 104% in the bottom right is the average actual earnings move over implied. You can say that options holders we up 4% holding straddles.

As an example for one day below, notice the top names in the graph and the green Actual/Expected Earn Move are so much greater than the negative moves.

Many of the past earnings season have coincided with macro events that drove implied volatility of the market higher. With straddles already elevated, the subsequent earnings moves were not as dramatic versus what was implied. This season, the implied volatility of the market has remained low compared to past earnings seasons. Starting from a lower base IV, the additional earnings effect implied by the options prices are often not enough to make up for actual moves.

This earnings season is on pins and needles to hear the guidance from companies. The soft vs hard landing debate plays out in the reported earnings and any miss is punished and gains are celebrated.

Read the MarketWatch Story here.

Disclaimer:

The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.

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The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors. For more information please see our disclaimer.
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