The options market has prepared for bigger-than-usual moves in the stocks of a trio of trillion-dollar companies, the day after they report quarterly earnings results.
That’s because the implied volatility, or how much a stock can be expected to move over a certain period, of the stocks for Apple Inc.
and Amazon.com Inc.
remain elevated, even as implied volatility for the S&P 500 index
has fallen to 13-month lows.
The three technology behemoths are scheduled to report earnings for their quarters through December after Thursday’s closing bell.
Read earnings previews for Apple, Alphabet and Amazon.
For Apple, an options strategy known as a “straddle” was recently priced for a one-day, post-earnings move of $5.79, or 3.9% at current prices, according to data provided by Matt Amberson, principal at Option Research & Technology Services. That’s a touch more than the average move of $5.76, or 3.8%, over the past 12 quarters.
The stock has moved more than 3.9% the day after earnings four times in the past 12 quarters, and most recently after the last quarterly report, according to FactSet data.
A “straddle” is a pure volatility play that involves the simultaneous purchase of bullish options (calls) and bearish options (puts), with the same at-the-money strike prices, or targets at current prices, and the same expirations dates. Buyers of straddles make money if the stock moves, in either direction, more than the implied expected range. Read more about straddles.
The expected ranges are determined by the stock’s implied volatility and the time till the option expires. For Apple, 30-day implied volatility was recently at 29.7%. That compares with the Cboe Volatility Index
known as the VIX, which fell to 17.58% in morning trading Thursday, the lowest level seen since mid-January 2022.
The VIX represents 30-day expected volatility for the S&P 500. It is often referred to as the stock market’s “fear gauge,” as volatility tends to rise as the stock market falls, and fall as the market rises.
Based on current prices, a buyer of an Apple straddle with Friday expiry would start making money if the stock rises above $156.04 or falls below $144.46 on Friday.
For Google-parent Alphabet, 30-day implied volatility was recently 36%, and a straddle implied a post-earnings move in the stock on Friday of up to $5.77, or 5.4%, which is above the 12-quarter average of $5.43, ORATS’s Amberson said. The stock has moved more than that five times the day after the past 12 quarterly reports, according to FactSet, including after the last two.
And for Amazon, 30-day implied volatility was 49.6%, and a straddle implied a one-day post earnings stock price move of up to $8.82, or 7.9%, which is above the 12-quarter average of $7.07, Amberson said. The stock has moved more than that after three of the past 12 quarterly reports, FactSet said, with all three times registering double-digit percentage moves.