Earnings Volatility: Apple Options Priced for a 4% Post-Earnings Move. What to Expect?

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 Date: 11/2 after market close

-Implied Move: 4.3%

-Absolute Average Actual Move for the past 4 Quarters: 4.9%

-Absolute Average Actual Move for the past 12 Quarters: 3.8%

-Earnings Normalized Estimate: $1.39 per share

-Revenue Estimate: $88.37 billion

According to recent data from Market Chameleon, options for Apple are undervalued compared with its average actual move for the past 4 quarters of 4.3%, and overvalued compared to 12 quarters. The options market overestimated AAPL stocks earnings move 58% of the time in the last 12 quarters.

Apple's earnings is expected to show lower revenue for iPhones and Macs amid "soft demand" in the US and China, UBS Securities said this week in a note.

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.