Option Volatility And Earnings Report For January 12 - 16

Earnings Reports Overview - Earnings season is commencing with major banks and tech stocks reporting, including Bank of America, Taiwan Semiconductor, JP Morgan, Wells Fargo, Citigroup, Morgan Stanley, Goldman Sachs, and Delta Airlines [1] Implied Volatility Insights - Implied volatility tends to be high before earnings reports due to market uncertainty, leading to increased demand for options [2] - After earnings announcements, implied volatility typically decreases to normal levels [3] Expected Stock Movements - Expected price movements for stocks reporting this week include: - Delta Airlines (DAL) - 6.8% - JP Morgan (JPM) - 3.8% - Bank of America (BAC) - 4.0% - Citigroup (C) - 4.5% - Wells Fargo (WFC) - 4.9% - Goldman Sachs (GS) - 4.4% - Morgan Stanley (MS) - 4.3% - Taiwan Semiconductor (TSM) - 5.3% - PNC - 3.8% [4][5][6] Trading Strategies - Option traders can utilize expected moves to structure trades, with bearish traders selling bear call spreads and bullish traders selling bull put spreads or considering naked puts [7] - Neutral traders may opt for iron condors, ensuring short strikes remain outside the expected range [7] Risk Management - It is advisable to employ risk-defined strategies and maintain small position sizes when trading options over earnings, limiting potential losses to 1-3% of the portfolio [8] Stock Screening for High Implied Volatility - A stock screener can identify stocks with high implied volatility, focusing on those with total call volume greater than 5,000, market cap over 40 billion, and IV rank above 40% [9][10]