Earnings Volatility | Netflix Shares Positioned for 8.8% Post-Earnings Wild Swing

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: 4/16 Pre-market

-Earnings Normalized Estimate: USD $0.767

-Revenue Estimate: USD $25.389 billion

According to recent data from Market Chameleon, the options market overestimated BAC stocks earnings move 67% of the time in the last 12 quarters. The predicted move after earnings announcement was ±4.0% on average vs an average of the actual earnings moves of 2.5% (in absolute terms).There is intensified bullish and bearish speculation ahead of earnings. Calls and puts with strike prices of $37 and $35, respectively, expiring this Friday are in high demand; additionally, calls and puts with the same strike prices expiring a month later also show increased trading volume and open interest.

Analysts expect that Bank of America's Q1 financial condition may benefit from increased trading and market-making activities due to a rising stock market, but the bank's net interest income is still expected to shrink. Moreover, unrealized losses on long-term bond investments are also a key point of interest for this earnings report.

-Earnings Date: 4/18 Post-market

-Earnings Normalized Estimate: USD $4.52

-Revenue Estimate: USD $9.279 billion

According to recent data from Market Chameleon, the options market overestimated NFLX stocks earnings move 50% of the time in the last 12 quarters. The predicted move after earnings announcement was ±9.0% on average vs an average of the actual earnings moves of 11.4% (in absolute terms). This shows that NFLX tended to be more volatile than the options market predicted for the earnings stock price reaction.

Since the first quarter, shares of Netflix have seen a increase of over 24%. Previously, Netflix has seen positive developments in user growth and revenue as it has been cracking down on password sharing and developing its ad-supported streaming service. In the last quarter, Netflix added an unexpected 13 million new subscribers, bringing the total paid user base to a record 260.8 million.

-Earnings Date: 4/18 Pre-market

-Earnings Normalized Estimate: USD $1.313

-Revenue Estimate: USD $582.548 billion

According to recent data from Market Chameleon, the options market overestimated TSM stocks earnings move 58% of the time in the last 12 quarters. The predicted move after earnings announcement was ±4.3% on average vs an average of the actual earnings moves of 4.4% (in absolute terms). This shows you that TSM tended to be more volatile than the options market predicted for the earnings stock price reaction.

On the options chain, calls for TSMC before earnings, with strike prices of $145, $150, and $160 expiring this Friday are being actively traded, with open interest of 12,000, 17,000, and 10,000, respectively.

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.