Earnings season starts two weeks after quarter-end, at either mid-January, April, July or October, and runs for six weeks. ORATS watches the implied earnings move in a stock and compares that to the actual move after earnings are announced.
Options prices imply an ‘earn 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. With 9% of companies we track reporting, the first two weeks have not been kind to options owners with the actual moves in stocks well below the expected moves based on options prices.
Currently, we are entering week three. This third week has historically shown a positive return for options buyers where actual moves in the stocks after earnings announcement out strip the expected move implied by options prices.
Compared to History
This season shows only 31% of stocks moving more than the options market expected. That 31% is well below the historical average of 39% winners.
The ratio of actual earnings moves to expected moves from the options market is only 77% (19% under the historical average of 96%).
This season’s report:
The historical average season’s report over the past 12 quarters:
The takeaways from this season are these:
- The first and second weeks have been dismal for options owners.
- The average earn moves for all stocks were well below the average.
- Weeks 3, 4 and 5 historically have been much kinder to options owners.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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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