Option Volatility and Earnings Report for March 2-6

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Earnings season is over, but we still have a few key names to report this week including Crowdstrike (CRWD), Broadcom (AVGO), Marvell Technologies (MRVL), Target (TGT), Costco (COST) and Alibaba (BABA).

Before a company reports earnings, implied volatility is usually high because the market is uncertain about the results of the report. Speculators and hedgers create a greater demand for a company’s options which increases implied volatility, and therefore options prices.

After an earnings announcement, weak volatility usually returns to normal levels.

Let’s take a look at the expected range for this stock. To calculate the expected range, look at the option chain and combine the at-the-money put option and the at-the-money call option. Use the first expiration date later Date of Income. While this method is not as accurate as an exact calculation, it serves as a reasonable approximation.

Monday

Nothing remarkable

Tuesday

CRWD – 8.7%

TGT – 9.6%

Wednesday

AVGO – 9.1%

Thursday

Sage – 4.6%

PBR – 4.8%

MRVL – 11.1%

Cost – 3.8%

KR – 5.8%

Friday

Nothing remarkable

Option traders can use these expected movements to structure trades. Bearish traders can see bearish year spread sales outside of expected range.

Different traders can sell bull-put spreads outside the expected range, or look at show puts for those with a higher risk tolerance.

Neutral traders can look to iron bars. When trading iron condors over earnings, it’s best to keep short strikes outside the expected range.

When trading options on earnings, it is best to stick to defined risk strategies and keep position sizes small. If the stock moves bigger than expected and the trade turns out to be a total loss, it shouldn’t affect your portfolio by more than 1-3%.

Stocks with high volatility

We can use the Barchart Stock Screener to find other stocks with high volatility.

Let’s run Stock Screener with the following filters: