While first-quarter reporting began last week, they really get rolling this week so the time has come once again to update our Volatility Kings™ list of companies that have a regular tendency to experience increasing option implied volatility as their quarterly reporting dates approach.

With the S&P 500 Index making multiple new highs volatility continues drifting lower, as option volume increases. Many new companies appearing in the top 200 by options volume for the first time makes it more difficult to find those with a regular tendency to experience increasing implied volatility ahead of reporting. In addition, unprecedented speculative activity dramatically increased the implied and historical (realized) volatility of a few widely followed hot stocks. 

The degree of uncertainty for upcoming reports may not be comparable to previous quarters. While some companies are on the list one quarter and not the next, others seem to remain on our list quarter after quarter. Focused on earnings, others with high-implied volatility due to takeover speculation, vaccine news, FDA announcements, or other extraordinary events, are excluded, along with those lacking sufficient liquidity due to low option volume described below.

In order to focus on those with the greatest options volume and best liquidity, the weekly options volume requirement is set at those with a weekly average of greater than 35K contracts. The objective is to find those stocks with sufficient options liquidity and therefore reasonable bid/ask spreads to use for various multiple leg strategies, such as Calendar Spreads, Butterflies, Iron Condors, Straddles, and more.

The selection process begins at our daily listing of found in the Rankers and Scanners section of  our home page about one-half way down the page, at the top left. Individual stocks with options volume less than 35K are excluded along with those with prices less than 10 since when prices are too low there are usually not enough option strike prices or liquidity for attractive option strategies.
Many IPOs and SPACs appeared in the top 200 list making the selection process more subjective. Sorted by nearest reporting dates, the list follows.

Volatility Kings™ 1Q 2021

Descriptions and details for the column headings.

Price in column 3, are closing stock prices as of April 16, 2021.

When in column 4, shows the next expected earnings report date. They require checking often as these are only estimates and companies often change the dates.

Time in column 5, shows the time during the day to expect the report, where B is before the open, A is after close.

Est. or Estimate in column 6 represents the current consensus or "whisper" per-share earnings estimate according to Earnings Whispers and may change before the report date. In addition, stock prices move on revenue and forward guidance as much, or perhaps more than on reported earnings. More than one-half show losses.

Last Q IV in column 7 shows elevated Implied Volatility Index Mean (IVXM) of the puts and calls going into the last quarterly report, but may not necessarily be as relevant this quarter.

IV Min Ex in column 8 shows the Implied Volatility Index Mean (IVXM) low after the last earnings report, making it easier to compare the pre-report high to the subsequent post reporting low.

IV Now in column 9 is the Implied Volatility Index Mean, (IVXM) as of April 16, 2021. Depending upon the last report date the implied volatility of those having recently reported may still be declining, such as Bed Bath & Beyond (BBBY) that reported fourth-quarter earnings on April 14.

52R in Column 10 displays the current Implied Volatility Index Mean (IVXM) relative to the 52-week range. All are below the middle of their range with some at their lows like Zoom Video (ZM) and Bed Bath & Beyond (BBBY).   

IV Est/Now in column 11 (yellow highlight), shows the ratio of the estimated implied volatility to the current implied volatility based primarily on the high reached the previous quarter. Those with higher ratios have a potentially greater opportunity to increase going into their next report date such as Palantir Tech (PLTR) at 2.23 and Game Stop (GME) at 2.16.

Typically implied volatility declines for 4-6 weeks after the reporting date followed by a subsequent rise for about 3-4 weeks before the next report, but vary with each having their own somewhat unique pattern.

In addition, market implied volatility plays a role. The S&P 500 Index implied volatility, measured by our IVolatility Implied Volatility Index Mean (IVXM) using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, slipped .15 points or -1.17% last week, ending at 12.64, a 52-week low shown in this 3-month chart.

By finding stocks that have a regular tendency to experience rising implied volatility ahead of earnings reports, such as Baidu (BIDU) or Zoom Video (ZM) offers opportunities to gain meaningful edge both as implied volatility declines after reporting and then advances again before the next report date.

To help identify implied volatility highs, lows, and estimate where they may go, along with other details, make sure to check the volatility charts at either our complimentary Basic Options or our more detailed Historical Data Charts on our website.

Earnings Strategy Ideas

As a nomenclature reminder, spreads executed with a debit are referred to as long positions, while those with credit are short positions.

Long Calendar Spreads buy deferred month options with lower implied volatility and sell near-term options with higher implied volatility with the same strike prices. However, since this position has short gamma or the rate of change of delta, any large move of the underlying stock on the reporting date will result in a loss. When opened just before reporting, when the near-term implied volatility is high, the results good or bad will be known quickly.

Short Calendar Spreads take a different approach by buying near-term options and selling deferred options before the implied volatility of the front-month begins to advance in anticipation of the next report date. The deferred short option implied volatility is less likely to advance while the implied volatility of near-term increases going into the earnings date. Then close the position near the top of the implied volatility just before the earnings date. The risk of a harmful stock price gap diminishes by closing the spread before the earnings report release. However, timing is more important since the position will be open longer, with long gamma and market risk.

Some other high-implied volatility strategies:

• Covered Calls - sell out-of-the-money calls against long stock.  
• Sell Puts - cash covered out-of-the-money puts or put spreads with defined risk.
• Iron Condors - sell both sides out-of-the-money. Remember to check the price chart and avoid those in steep up or downtrends. Ideally, look for those with high implied volatility with the stock in a well-defined range.

Summary

Earnings reporting already underway really begins to accelerate this week with lowered easily to beat estimates for many widely followed stocks. Our Volatility Kings™ list offers ideas to consider, both long and short volatility such as calendar spreads, along with other ideas.