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This week is much more sedate on the earnings front after a busy few weeks, which could be a good or a bad thing depending on your approach. This week we have Cisco Systems (CSCO), RocketLab (RKLB), CoreWeave (CRWV) and Applied Materials (AMAT) as the main companies reporting.

Before a company reports earnings, implied volatility is usually high because the market is unsure about the outcome of the report. Speculators and hedgers create huge demand for the company's options which increases the implied volatility, and therefore, the price of options.

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After the earnings announcement, implied volatility usually drops back down to normal levels. 

Let's take a look at the expected range for these stocks. To calculate the expected range, look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. Use the first expiry date after the earnings date. While this approach is not as accurate as a detailed calculation, it does serve as a reasonably accurate estimate.

Monday

RKLB – 13.6%

B – 5.9%

Tuesday

CRWV – 14.6%

LITE – 13.8%

SE – 11.6%

Wednesday

CSCO – 8.0%

Thursday

NU – 6.6%

AMAT – 9.6%

JD – 5.3%

Friday

Nothing of note 

Option traders can use these expected moves to structure trades. Bearish traders can look at selling bear call spreads outside the expected range.

Bullish traders can sell bull put spreads outside the expected range, or look at naked puts for those with a higher risk tolerance. 

Neutral traders can look at iron condors. When trading iron condors over earnings, it is best to keep the short strikes outside the expected range. 

When trading options over earnings, it is best to stick to risk defined strategies and keep position size small. If the stock makes a larger than expected move and the trade suffers a full loss, it should not have more than a 1-3% effect on your portfolio.

We can use Barchart's Stock Screener to find other stocks with high implied volatility.

Let's run the stock screener with the following filters:

Total options volume: Greater than 10,000

Market Cap: Greater than 40 billion

IV Rank: Greater than 70%

This screener produces the following results sorted by IV Rank. 

You can refer to this article for details of how to find option trades for this earnings season. 

PLTR +29.5% vs 11.4% expected

AMD +7.0% vs 9.9% expected

PFE +1.5% vs 3.5% expected

MCD +1.2% vs 3.8% expected

ALAB +12.7% vs 18.3% expected

ANET +3.6% vs 11.2% expected

CAT +5.6% vs 7.2% expected

SPOT -1.7% vs 9.1% expected

MRK +0.2% vs 4.8% expected

SNDK -6.8% vs 18.9% expected

OXY +4.1% vs 5.5% expected

UBER -5.3% vs 7.0% expected

APP -19.7% vs 13.8% expected

SHOP +17.0% vs 12.5% expected

LLY +4.9% vs 7.5% expected

DIS +3.7% vs 6.3% expected

DASH +2.4% vs 10.2% expected

DDOG -19.0% vs 14.4% expected

COP +1.5% vs 4.4% expected

NET +5.6% vs 12.1% expected

ABNB +17.4% vs 7.1% expected

BRK.B -0.5% vs 2.1% expected

VST -0.6% vs 7.9% expected

Overall, there were 18 out of 23 that stayed within the expected range. 16 out of 23 moved higher following their announcement.

TSLA, ADBE, TTD, MSTR, NVDA and MARA and all experienced unusual options activity last week.

Other stocks with unusual options activity are shown below:

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

On the date of publication, Gavin McMaster had a position in: NVDA, TSLA. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com