How to use the performance period for options trading
Implicit changes in options are the magnitude of price changes expected by the market on a stock's performance date. Market traders can infer the value of an option by referring to implied changes. Furthermore, by reviewing the stock's past stock price performance on the performance date, it is also possible to determine its specific trading pattern or rise or fall situation.
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.
This week, US stocks are about to kick off the Q2 earnings season. Among them, bank stocks take the lead.$Bank of America (BAC.US)$,$Citigroup (C.US)$,$JPMorgan (JPM.US)$,$Wells Fargo & Co (WFC.US)$,$Morgan Stanley (MS.US)$Major bank stocks will be listed one after another in the next two weeks. In terms of technology stocks,$Taiwan Semiconductor (TSM.US)$,$Netflix (NFLX.US)$It will also be the first to release the latest results next week.
Results release date: July 16 pre-market
Performance forecast: Q2 revenue of 25.257 billion US dollars, up 0.2% year on year; earnings per share of 0.8 US dollars, down 9% year on year
Bank of America's current implied change is ± 4.3%, indicating that after betting on its performance, the options market rose or fell 4.3% in a single day, fluctuating slightly above the historical average. The stock had an average change of ± 2.6% over the past 12 performance days, and the probability of rise was as high as 75%; the most volatile rises and falls were +6.1% and -3.5%, respectively; in the last four performance days, Bank of America had the same number of ups and downs, closing at +4.4%, +2.3%, -1.1%, and -3.5%, respectively.
Looking at Bank of America's options trading situation on Friday, we found that the $35 trade was the most active, betting direction was bullish, with an unclosed position volume of 0.042 million; in the options chain with the highest number of unliquidated positions, the highest was a $25 execution position and a $30 put due on January 17, 2025, with an unclosed position volume of over 0.08 million.
2,$Taiwan Semiconductor (TSM.US)$
Results release date: July 18 pre-market
Performance forecast: Q2 revenue of NT$651.728 billion, up 35% year on year; earnings per share were approximately NT$45.65, up 30% year on year
After betting on TSMC's results, the options market rose and fell 7.9% in a single day, fluctuating slightly higher than the previous average. The stock's average change in the past 12 performance days was ± 4.6%, and the probability of increase was 67%. In the last four performance days, TSMC's overall fluctuation was slightly higher than the previous period, and closed at -5.1%, +3.7%, +9.8%, and -4.9%, respectively, after the four results.
Judging from the bias in the volatility of options, the current market is bullish on TSMC.
On the eve of the second-quarter earnings report, TSMC's stock price repeatedly reached new highs. According to several Wall Street investment bank analysts, TSMC will raise its annual sales forecast in the financial report to be released next week due to continued tension in the global high-end foundry situation. According to the Macquarie Securities report, TSMC learned through supply chain inspections that most customers have agreed to increase OEM prices to ensure stable supply, which will drive TSMC's gross margin to rise further.
Investment banks such as Morgan Stanley and J.P. Morgan Chase, Nomura Holdings, and Mizuho Securities all sang in unison and expressed optimism about TSMC's second-quarter results, and Daima raised its target price by 9%. According to data compiled by Bloomberg, the market currently expects TSMC's revenue to increase 35% year-on-year in the second quarter, the fastest growth rate since the fourth quarter of 2022.
Results release date: July 18 after the market
Performance forecast: Q2 revenue of $9.5321 billion, up 16% year on year; earnings per share of $4.742, up 44% year on year
The options market bet that the single-day rise and fall rate was 8.8% after betting on Chennai's performance, but the previous performance fluctuated by more than 11%, and the value of the option may have been undervalued. The stock declined a lot in the past 12 performance days, accounting for 58%; in the last four performance days, Netflix's overall fluctuated greatly, closing at -8.4%, +16.1%, +10.7%, and -9.1%, respectively, after four results.
Judging from the bias in the volatility of options, the current market is slightly bullish on Netflix. Looking at Netflix Options activity last week, we found that on Friday, Netflix Options trading volume surged markedly, increasing by nearly 3 times from month to month, and the bullish ratio increased to 70%. Some large players drastically increased their holdings due next Friday and exercised $680. Both the trading volume and unclosed positions were over 2,000.
Netflix has had a strong trend this year, rising more than 40% during the year, and hit another high intraday stock price last Friday. However, the stock fell more than 9% after the previous quarter's results, mainly because Netflix's full-year forecast guidelines fell short of expectations and that it will no longer release user data from 2025.
Earlier, Netflix warned that “typical seasonal factors will cause the increase in users in the second quarter to be lower than in the first quarter.” Analysts also said that due to this factor, Netflix's Q2 net profit may decline month-on-month. However, the company should probably benefit from an ad-supported package, which can attract more price-sensitive customers for only $7 a month.
How to easily enjoy the performance period? Futu Options tools help you!
>>Make good use of volatility analysis to determine the level of option valuation!
>>Options calculator to calculate the theoretical price of future options
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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