At the close on Friday, SPY options were pricing in about a 2% move in either direction for the upcoming week. That corresponds to about $376 to the downside and $392 on the upside. The Nasdaq and Russell saw wild swings last week and options are pricing larger moves for this week than SPY:
The VIX got near 32 on Thursday and closed below 25 on Friday after that monster rally back. Implied volatility in the big ETFs can sometimes have a hard time pricing two-way movement like last week. The indices were practically unchanged on the week but were seeing intraday moves larger than what options were pricing for the entire week. The VIX collapsed on Friday on that rally but it certainly wasn’t due to a lack of stock movement. In other words, if one is trading pure IV out a month or more those changes in VIX are tradeable. If one is trading a week or two out, it’s all about the expected move… where the VIX or individual stock IV is at entry is less important.
Tesla is an interesting name right now as it’s sort of representative of the selling going on in recent high flyers. Even with the rally Friday afternoon in the major indices TSLA closed down on the day by 4%. Here’s a look at TSLA’s expected move over the next few weeks via Options AI:
Options are pricing about a $50 move in either direction for this week, and about a $90 move for the rest of March.
Earnings this Week
Earnings season isn’t as active this week but a few names of interest do report. Here are a few of them, their expected moves for this week and how they moved in prior earnings. For a full searchable database you can use the Options AI Calendar (which is free to use). The links in the symbols are to the calendar, the prior earnings moves start with most recent and go back in time:
PRTS / expected move 20% / prior moves: -23%, +3%
DKS / expected move 8% / prior moves: +0%, +16%, +4%
AMC / expected move 17% / prior moves +9%, +15%, +5%
CLDR / expected move 12% / prior moves +7%, -12%, -13%
ORCL / expected move 4.5% / prior moves +2%, -1%, -6%
JD / expected move 7% / prior moves -7%, +8%, +4%
DOCU / expected move 9% / prior moves +5%, -11%, -0%
ULTA / expected move 7% / prior moves -3%, +6%, +0%
A note on expected moves. Options need to price in both the overall market volatility and the earnings event itself. So a company reporting on Monday still has a few days for the stock to move after earnings and before expiration, while companies reporting on Thursday can move with the market before they report. The percentage moves will be roughly the same barring huge moves in market IV, but obviously what the percentage moves correspond to in the stock will change depending on where the stock is into its event.
The expected move is extremely useful not only to get a sense of how the crowd is pricing moves but also on strike selection in any option strategy. An oversimplified way to think of it is that if you own premium with a breakeven beyond the stock’s expected move you need the options market to have underpriced the move, even if you get the direction correct. And if you are a net seller of premium you want the options market to be overpricing these moves, especially if you get the direction wrong.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.