The options market has prepared for bigger than usual moves in the stocks of a trio of trillion-dollar companies the day after they reported quarterly earnings results.
The implied volatility, or how much a stock can move over a period, of the stocks for Apple Inc., Alphabet Inc. GOOGL and Amazon.com Inc. AMZN, are elevated, even though implied volatility for the S&P 500 index SPX has fallen to 13 month lows.
Three technology behemoths are expected to report earnings for their quarters through December after Thursday s closing bell.
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 Matt Amberson, principal at Option Research Technology Services. That is a bit 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. If the stock moves more than the implied expected range, buyers of straddles make money. The stock's implied volatility and the time until the option ends are the factors that determine the expected ranges. For Apple, implied volatility was 29.7% on the 30 day day. The VIX, known as the Cboe Volatility Index, fell to 17.58% in morning trading Thursday, the lowest level since mid-January 2022, the lowest level since mid-January 2022.
The S&P 500's expected volatility is predicted by the VIX. It is often referred to as the stock market's fear gauge, as volatility tends to rise as the stock market falls and the market rises.
A buyer of an Apple straddle with Friday expiry would start making money if the stock goes above $156.04 or falls below $144.46 on Friday.
For Google-parent Alphabet, implied volatility was recently 36%, and a straddle implied a move in the stock on Friday of up to $5.77, or 5.4%, which is above the 12 quarter average of $5.43, according to ORATS s Amberson. The stock moved more than that five times the day after the last 12 quarterly reports, according to FactSet.
A straddle implied a one-day post earnings stock price move of up to $8.82, or 7.9%, is above the 12 day average of $7.07 for Amazon, and the implied volatility was 49.6% on the 30 day day. 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.