Implicit changes in options are the extent to which the market expects the price of a certain stock to change on the performance date. It is also an important influencing factor in the value of options. Based on the ranking of options trading volume, this article has screened ten stocks that are about to announce their results, and counts the implied changes in the stock options mentioned above for Niu You's reference.
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Results release date: April 16, 2024 pre-market
Performance forecast: Q1 revenue of US$25.389 billion, a decrease of 3.31% year over year; earnings per share of $0.77, a decrease of 18.46% year over year
The Bank of America's current implied change is ± 4.1%. The market is betting on its performance, rising and falling 4.1% in a single day, and the fluctuation is slightly higher than the previous level. If the daily performance of the previous 12 quarters is retested, Bank of America closed more times after the results. The probability of increase was as high as 75%, and the average stock price change was ± 2.5%.
Looking at the options chain, the game of long and short before the Bank of America's performance intensified. Expires on Friday, and calls with an exercise price of $37 and a $35 put have both been snatched up; in addition, the trading volume and open positions of $37 calls and $35 puts, which expire a month later and are at an exercise price of $35, have also increased.
Analysts expect that due to the rise in the stock market, Bank of America's Q1 financial position may be boosted by increased trading and market-making activity, but the bank's net interest income will still shrink; in addition, unrealized losses on long-term debt investments are also a key point worth paying attention to in this financial report.
Results release date: April 18, 2024 after the market
Performance forecast: Q1 revenue of US$9.277 billion, up 13.67% year on year; earnings per share of US$4.52, up 56.9% year on year
Netflix's current implied change is ± 8.8%. The market is betting that its stock price may fluctuate up to 8.8% on the performance day, and the current option value is slightly undervalued. On the first two quarterly results announcements, Netflix achieved sharp double-digit gains (+16.1%, +10.7%); if the daily performance of the previous 12 quarters was backtested, the probability of a decline was high, accounting for 58%, and the average stock price change was ± 11.4%.
Since the first quarter, Netflix has accumulated a cumulative increase of more than 24%. Previously, Netflix had frequent advantages in terms of user growth and revenue, as it had been cracking down on password sharing while also building its ad-supported streaming service. In the last quarter, Netflix added 13 million new users, exceeding expectations, and the total user base reached a record 260.8 million paying users.
3.$Taiwan Semiconductor (TSM.US)$
Results release date: April 18, 2024 pre-market
Performance forecast: Q1 revenue of US$582,548 million, up 14.53% year on year; earnings per share of US$42.11, up 3.24% year on year
TSMC's current implied change is ± 6.8%, which is slightly higher than the previous level. Looking back at the daily performance of the past 12 quarters, TSMC has a high probability of rising, about 67%. The average share price change is ± 4.4%, and in the eight performance announcement days in the past two years, TSMC has closed down only 2 times.
Judging from the options chain, TSMC's first call order is in demand. Expired this Friday, the calls with trading prices of 145, 150, and 160 dollars were all hotly sought. The unclosed positions were 12,000, 17,000, and 10,000, respectively.
How to use the performance period for options trading
When stock results are announced, the market will price options based on expectations of changes in either direction. Options traders can compare the stock's historical movement (in absolute terms) to measure whether the market's expected price is higher or lower than its historical average change. In addition, options traders can also determine whether there was a specific trading pattern or rise and fall during the period when its results were published by understanding the stock's historical trading situation.
What is IV crush
Implied volatility usually rises before important events such as performance, product launches, or clinical trial results occur. However, after the news is released, since stock prices have already reacted to the news, the implied volatility is likely to drop rapidly. This phenomenon is known as IV crush. The IV crash causes options prices to drop because the implied volatility is drastically reduced (the higher the implied volatility, the more expensive the option fee).
Volatility options strategies
When options are overvalued, arbitrage can be carried out based on short-term fluctuations in IV Crush if the stock price is still within the expected range. Common short-term volatility strategies include the Iron Eagle strategy, the sell cross strategy, and the sell wide span strategy.
Admittedly, IV Crush isn't a risk-free arbitrage strategy. However, if options are undervalued and stock prices fluctuate greatly, options traders can still benefit from them. For example, cross-cutting strategies can benefit from large fluctuations, where buyers buy bullish and bearish options at the same execution price and expiration date, as options may fluctuate significantly in either direction.
Disclaimers
This content does not constitute an offer, solicitation, recommendation, opinion or guarantee of any securities, financial products or instruments. The risk of losing money when trading options can be extremely high. In some cases, you may lose more than the amount of your initial deposit. Even if you set backup instructions, such as “stop corrosion” or “limit price” instructions, you may not be able to avoid losses. Market conditions may make such instructions unenforceable. You may be asked to deposit an additional security deposit within a short period of time. If you fail to provide the required amount within the specified time, your open positions may be closed. However, you are still responsible for any shortfall in your account as a result. Therefore, you should study and understand options before trading, and carefully consider whether this type of trading is suitable for you based on your financial situation and investment goals. If you trade options, you should be familiar with the procedures for exercising options and when they expire, as well as your rights and responsibilities when you exercise options and when they expire.
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