Options Volatility: Navigating Big Banks, Healthcare, and Tech Earnings

The earnings season is picking up speed, and this mid-July, we're about to get updates from some of the biggest names across various industries. Expect to hear from large banks, healthcare companies, airlines, and some of the tech and telecom giants that we all know.

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.

-Earnings Release Date: Pre-market on July 16

-Earnings Forecast: 2024 Q2 revenue of $25.2 billion, up 0.03% year-over-year; EPS of $0.8, down 9.25% year-over-year

Before Bank of America reported its earnings, investors were expecting some pretty noticeable swings in the stock price—about plus or minus 3.7%, to be exact. However, the reality was a bit calmer than anticipated. On average, the actual stock price moves turned out to be around plus or minus 2.3%, which is 1.3% less volatile than what was predicted. When the market opened, the stock typically saw initial jumps or drops averaging around plus or minus 1.8%, and after that initial opening, the price tended to shift by about plus or minus 1.6% over the rest of the trading day.

Looking at how the stock performed during the trading day after earnings were announced, we've seen some significant swings. The biggest leap the stock made was a solid 8.2% gain, while on the downside, the heaviest drop was 7.7%. Despite these extremes, the trend for BAC shares has been generally positive post-earnings: in 9 out of the last 12 reports, the stock has climbed, with an average increase of 1.4% on the first trading day following the earnings release. This suggests that, more often than not, the company's earnings news has been well-received by the market.

As Bank of America (BAC) prepares to report earnings, a look at its peers may offer some insight into what to expect. Citigroup (C) managed to beat expectations with a 10% rise in net income compared to last year, but when you take out one-time gains, both JPMorgan Chase (JPM) and Wells Fargo (WFC) saw profits drop. Despite some beating the forecasts, their stocks didn't fare well, with JPMorgan, Citigroup, and Wells Fargo experiencing declines of 1.2%, 1.8%, and a sharp 6%, respectively. A common thread among these banks has been the challenge of falling net interest income and stagnant loan growth, as well as setting aside more money for potential bad loans. These trends underscore the shifting landscape where rising interest rates are squeezing bank profits and raising concerns about a slowing economy and borrowing. These factors could also influence Bank of America's upcoming earnings report.

-Earnings Release Date: Pre-market on July 18th

-Earnings Forecast: 2024 Q2 revenue of TWD $653.34 billion, up 35.88% year-over-year; earnings per share of TWD $45.83, up 29.13% year-over-year.

Before Taiwan Semiconductor Manufacturing Company (TSM) released its earnings, the market was bracing for the stock price to swing by around plus or minus 4.1%. The reality was slightly less dramatic, with the stock actually moving by an average of plus or minus 3.4%, which is 0.7% more stable than expected. When the market opened, the stock usually had initial changes of about plus or minus 2.6%, followed by further fluctuations of around plus or minus 1.9% throughout the day. The stock's most significant jumps included a 12.9% rise and a 6.9% fall after earnings announcements. Historically, TSM shares have generally trended upward after earnings, showing positive movement in 8 out of the last 12 reports, with an average increase of 1.5% on the day following the earnings announcement.

The implied volatility of TSM skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls.

The current implied volatility for Taiwan Semiconductor Manufacturing Company (TSM) options stands at a modest 7.5%. However, the company is poised to release its earnings report this week, casting a spotlight on the potential for heightened market activity. Over the past 12 quarters, TSM has exhibited an average earnings-related share price movement of approximately 4.6%, either upward or downward. This notable discrepancy between the implied volatility and historical price fluctuations presents intriguing opportunities for volatility speculation.

- Earnings Release Date: Pre-market on July 18th post-market

- Earnings Forecast: 2024 Q2 revenue of $9.53 billion, up 16.44% year-over-year; earnings per share of $4.74, up 44.17% year-over-year.

In the case of Netflix, investors were expecting a wild ride, with a forecasted earnings move of plus or minus 9.1%. The actual outcomes turned out to be even more pronounced, with an average move of plus or minus 9.7%, slightly overshooting the expectations by 0.5%. At the opening bell, the stock typically experienced substantial gaps averaging around plus or minus 8.8%, and the stock continued to be active, moving about plus or minus 2.6% after the open. During trading hours after earnings were out, Netflix's stock made its biggest climb by 20.1% and its deepest dive by a staggering 39%. Despite these large swings, NFLX shares have more often lost ground immediately after earnings, dropping in 7 out of the last 12 reports, with an average decline of 2.3% on the first trading day post-earnings.

- Earnings Release Date: July 17th post-market

- Earnings Forecast: 2024 Q2 revenue of $15.02 billion, up 22.10% year-over-year; earnings per share of $3.96, up 22.10% year-over-year.

Looking at United Airlines (UAL), the market anticipated earnings would cause the stock to shift by plus or minus 5.5%. The stock ended up being slightly more resilient than expected, with an actual average move of plus or minus 5.2%, just 0.3% less than the forecast. Opening trading sessions typically saw gaps of about plus or minus 3.3%, with the stock continuing to adjust by around plus or minus 3.2% afterward. When it came to the biggest changes within regular trading hours, UAL's stock had its highest surge at 18.4% and its greatest decline at 12.7% following earnings reports. Over the past 12 earnings releases, UAL's shares have more frequently experienced an upswing, rising after 7 reports, and averaging a 1.9% increase on the day after earnings were shared.