Earnings Season Week 3 Has Been Better 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 wrapping up 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 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.

To date with 50% of companies we track reporting, this third week in October earnings season has been very different the previous two.

Putting some numbers up for comparison:

October’s week 1 saw only 26% of companies post earnings moves greater than expected. Week 2 had only 30%. This week 3 had 38% winners.

The magnitudes of the earnings moves have been much greater than the last two weeks as well. Whereas the actual move vs the implied move during this week was 103% (a profit for owners) weeks 1 and saw returns of only 63% and 82%.

Session of 10/11/2019

Historically, this week 3 and especially next week 4 has been much kinder to options holders with win rates at 44% and 46%, and actual moves divided by implied moves of 103% and 108%. Weeks 1 and 2 have been historically weak, and that is what we saw this season.

Historical average week

If history is any judge, next week should be a wild one for companies reporting earnings.

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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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