Earnings season and implied moves

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Key idea: Option prices reveal how big a move the market prices in for an earnings report. Comparing that with past moves shows whether the fear is high or low.

Four times a year companies report results, and share prices can jump or drop sharply on the day. You can measure how big a move the market is bracing for by looking at option prices.

The implied move comes from the at-the-money straddle, a call and a put at the same strike. If the share is $100 and the straddle costs $6, the market prices in a move of roughly 6% in either direction.

Compare that with the stock's real moves after its last eight reports. If it usually moves 3% and the options price in 8%, fear is running high. If it often moves 10% and the options price in 4%, the market may be calm.

None of this tells you which way the move goes. It tells you how much uncertainty is in the price, which matters for anyone holding the shares through the report.

Quick check

A share trades at $80 and the at-the-money straddle costs $4. Roughly what move does the market price in?

See earnings implied moves →

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