Earnings Preview | Options Market Sees Mixed Move in MRVL, FFIE and COST Shares After Earnings

Stock prices may see larger-than-normal moves during earnings season, making it a potentially attractive time for options traders. For investors looking to trade against these moves, you should always keep track of how the options might shift after their earnings.

Here are the top earnings and volatility for the week:

- Earnings Release Date: Post-market on May 30

- Earnings Forecast: FY2025 Q1 revenue of $1.16 billion; EPS of $-0.221, down from positive readings last quarter.

- Prior to MRVL earnings releases, the average expected earnings move was ±6.7%. The actual move averaged ±5.7%, which is 1.0% below the average predicted move.

- The options market overestimated MRVL stocks earnings move 75% of the time in the last 12 quarters. The predicted move after earnings announcement was ±8.3% on average vs an average of the actual earnings moves of 8.8% (in absolute terms). This shows you that MRVL tended to be more volatile than the options market predicted for the earnings stock price reaction.

According to Goldman Sachs' latest report, money managers cut their stakes in mega-cap firms while they poured into power and infrastructure companies that may gain from an AI boom.

- Earnings Release Date: Post-market on May 29

- Earnings Forecast: 2024 Q4 revenue of $84.4 Million; EPS of $-7.46.

Prior to AI earnings releases, the average expected earnings move was ±9.4%. The actual move averaged ±7.0%, which is 2.4% below the average predicted move. The opening gaps averaged ±5.3% while the stock drift after the open tended to move ±3.8%.

AI shares have moved lower in the immediate aftermath of earnings 8 out of 12 previous reports. On average the stock moved down -1.9% in the first day of trading after the company reported earnings.

C3.a;s fiscal fourth-quarter performance is anticipated to have benefited significantly from the company's C3 Generative AI solutions and the rising demand for its Enterprise AI software.

In the previous fiscal third quarter, C3.ai achieved notable milestones by closing 50 agreements, which marked an 85% year-over-year increase, including 29 new pilot projects, a 71% year-over-year rise. The introduction of C3 Generative AI, designed to address challenges in large language models and provide multimodal solutions, has likely bolstered the company's performance.

Additionally, the qualified opportunity pipeline surged by 73% year over year, and the company successfully closed 17 C3 Generative AI pilots across various industries, reflecting strong momentum in this sector, according to Zach's Equity Research.

C3.ai’s strategic efforts to diversify its customer base across industries such as manufacturing, federal, defense, aerospace, and pharmaceuticals have substantially contributed to revenue growth.

The company’s expanding federal footprint, highlighted by the C3 AI State & Local Government Suite, generated record bookings and revenues with an 85% and 100% year-over-year increase, respectively, in the fiscal third quarter.

State and local government represented 29% of bookings, a trend expected to persist in the reported quarter. Additionally, C3.ai has leveraged strategic partnerships with major tech firms like Booz Allen Hamilton, Microsoft, AWS, and Google Cloud, resulting in 27 agreements through its partner network in the fiscal third quarter and a remarkable 337% year-over-year growth in partner-supported bookings.

- Earnings Release Date: Post-market on May 30

- Earnings Forecast: 2024Q3 revenue of $57.97 billion; earnings per share of $3.68.

Prior to COST earnings releases, the average expected earnings move was ±3.3%. The actual move averaged ±2.7%, which is 0.5% below the average predicted move.

The options market overestimated COST stocks earnings move 42% of the time in the last 12 quarters. The predicted move after earnings announcement was ±3.8% on average vs an average of the actual earnings moves of 3.3% (in absolute terms).

COST stock had mixed performance leading up to earnings. Shares of Costco Wholesale traded lower, on average, in the two weeks periods heading into an earnings report. The best performance was one week ahead of earnings for an average gain of 0.8%

Before significant corporate events such as earnings announcements, product launches, or clinical trial results, implied volatility tends to increase. However, after the news has been released, the implied volatility can drop significantly due to the sudden clarity in the market and the stock price reaction to the news. This phenomenon is referred to as IV crush.

IV crush can lead to a decrease in option prices because the Implied volatility is lowered dramatically. This decrease in option prices due to IV crush can be a risk for options traders who have purchased options at a higher price with the expectation of making a profit from a significant move in the underlying stock price. Conversely, IV crush may not be as prevalent if the option is undervalued and the stock price moves drastically, which can pose a risk for option sellers. It's important for traders to be aware of IV crush and factor it into their trading strategy when considering options trades around significant corporate events.

Not all options are affected equally by an IV crush. IV crush affects short-term option prices more than long-term option prices.

Nonetheless, it's important to note that trading options always involve risks, and investors should consult with a financial advisor before making any trades.