Earnings Season: Stocks to Watch This Week (Aug 19 - 23)

This week, several major companies will be reporting earnings, including Zoom Video Communications (ZM), Baidu (BIDU), Snowflake (SNOW), Palo Alto Networks (PANW), and Target (TGT). To help investors navigate the earnings season, TipRanks has calculated the expected moves of these companies' stocks, leveraging the at-the-money straddle of options expiring closest to the earnings announcement date.

Understanding Implied Volatility

The concept of implied volatility plays a crucial role in understanding the expected stock moves around earnings announcements. Implied volatility, essentially a measure of uncertainty about a stock's future price movement, tends to be high in the days leading up to earnings due to the unknown outcome of the report. Investors are unsure whether the earnings will be positive or negative, leading to increased demand for options contracts and, consequently, higher premiums.

The Volatility Crush

Post-earnings announcement, the uncertainty is resolved, and implied volatility typically decreases significantly, a phenomenon known as the volatility crush. This drop in volatility is directly reflected in the decrease in the price of options, or the option premium.

Expected Earnings Moves for This Week

Here are the major companies reporting this week along with their expected earnings moves. Click on any ticker for more information about options on the stock, including real-time expected earnings moves, prices, volume, and open interest.

Monday

PANW – +/- 9.64%
EL – +/- 10.66%

Tuesday

MDT – +/- 3.53%
LOW – +/- 4.55%

Wednesday

SNOW – +/- 11.52%
TGT – +/- 8.37%
ZM – +/- 8.58%
TJX – +/- 4.84%

Thursday

BIDU – +/- 6.92%
WDAY – +/- 8.37%
TD – +/- 4.41%

Friday

No notable earnings releases.

Trading Strategies Using Expected Earnings Moves

Option traders can utilize these expected moves to structure their trades effectively. Bearish traders may consider selling bear call spreads outside the expected range, while bullish traders can opt for selling bull put spreads outside the expected range or even explore naked puts for higher-risk appetites.

Neutral traders can employ iron condors, strategically keeping the short strikes outside the expected range when trading over earnings. It is generally recommended to stick to risk-defined strategies and maintain a small position size when trading options over earnings. This ensures that even if the stock makes a larger-than-expected move and the trade incurs a full loss, the impact on your portfolio remains minimal (ideally 1-3%).

Identifying Stocks with High Implied Volatility

Barchart's Stock Screener offers a convenient tool to identify stocks with high implied volatility. By running the screener with specific filters, you can generate a list of stocks exhibiting elevated implied volatility, allowing you to potentially capitalize on these opportunities.

Last Week's Earnings Moves: A Recap

Looking back at last week's earnings releases, we can analyze the actual moves compared to the expected moves. Of the 13 companies reviewed, 8 stayed within the expected range.

GOLD +9.1% vs. 5.0% expected
BEKE +5.5% vs. 8.5% expected
MNDY +14.8% vs. 13.8% expected
NU +5.3% vs. 8.7% expected
HD +1.2% vs. 5.8% expected
SE +11.9% vs. 12.5% expected
ONON +4.4% vs. 11.4% expected
CSCO +6.8% vs. 6.6% expected
BABA +0.1% vs. 5.8% expected
WMT +6.6% vs. 5.3% expected
JD +4.3% vs. 7.3% expected
AMAT -1.9% vs. 7.1% expected
DE +6.3% vs. 5.9% expected

Unusual Options Activity

Last week, several stocks, including PLTR, DELL, F, MSTR, and TSLA, exhibited unusual options activity, indicating potential market interest or speculation.

Disclaimer

Remember that options trading involves inherent risks. Investors can potentially lose 100% of their investment. This article serves educational purposes only and should not be considered a trade recommendation. Always conduct thorough due diligence and consult with your financial advisor before making any investment decisions.

Beyond the Numbers: Key Insights

While specific numbers and expected moves provide valuable information, it is equally important to consider the underlying factors influencing the companies' performance and earnings potential. For example, understanding the current economic climate, industry trends, and individual company dynamics can contribute to a more well-rounded investment strategy.

A Look Ahead: The Week in Review

This week's earnings season offers several opportunities to monitor and potentially capitalize on market movements. By staying informed about expected earnings moves, implied volatility, and trading strategies, investors can make more informed decisions and potentially enhance their portfolio returns.

Conclusion: The Art of Informed Trading

Navigating the earnings season effectively requires a combination of data analysis, strategic trading, and a clear understanding of the market landscape. By leveraging the information provided by TipRanks and other resources, investors can gain a competitive edge and potentially increase their chances of success in this dynamic environment.