Earnings Season: October a Terrible Start for Options Owners

Earnings season starts two weeks after quarter-end, at either mid-January, April, July or October, and runs for six weeks. Currently, we are starting off week three of the October earnings season. ORATS watches the implied earnings move in a stock after expiration versus the actual move. Options prices imply a 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 26% of companies we track reporting, this October earnings season has been very different from the July earnings season. July’s crazy results ended up being a boon for options owners who like to see big moves vs what the options prices predict. This current season has been particularly rough for options owners.

Putting some numbers up for comparison:

October’s week 1 saw only 27% of companies post earnings moves greater than expected. Week 2 had only 28%. Contrast this with July which saw 48% of companies post moves greater than implied by the options market prices.

The magnitudes of the earnings moves have been much less than last season as well. Whereas, it paid to own options in July, the actual move vs the implied move during this season is only 77%, or a loss of 23% to owners of options over the earnings announcement.

Options chart - earnings season

The average win rate percentage for the last 12 quarters is 39% and the average actual move divided by the implied move is 96%, or a loss of 4% to options holders.

This earnings season, although only 2 weeks in, has truly been a bloodbath for options buyers.

Historically, this week 3 has been much kinder to options holders with win rates at 44%, 10% points higher than week 2, and actual moves divided by implied moves averaging 103%, 16% higher than week 2.

Historical options chart performance

Let’s see if options buyers can turn it around this week.

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Matt Amberson

Matt Amberson, Principal and Founder of Option Research & Technology Services. ORATS was born out of a need by traders to get access to more accurate and realistic option research. Matt started ORATS to support his options market making firm where he would hire statistically minded individuals, put them on the floor, and develop research to aid in trading options. He is heavily involved with product design and quantitative research. ORATS offers data and backtesting on a subscription basis at www.orats.com. Matt has a Master’s degree from Kellogg School of Business.

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