Options Volatility and Implied Earnings Moves This Week, September 03 – September 05, 2024

Implied Volatility on the Move; Volatility Declined After Last Week's Rebound

Options volatility climbed during the week, despite a drop in the CBOE Volatility Index (VIX). The VIX, which measures the implied volatility of S&P 500 index options, fell 2.9% to 19.47 on Friday. However, the VIX remains elevated compared to its historical average of around 15.

The rise in options volatility was driven by a number of factors, including the upcoming release of key economic data. Traders are also pricing in the possibility of a more hawkish Federal Reserve. The Fed is expected to raise interest rates again at its next meeting, and some traders believe that the pace of rate hikes could accelerate in the coming months.

Implied Earnings Moves

The implied earnings moves for this week are as follows:

• Monday, September 3: No major companies reporting.
• Tuesday, September 4: Zoom Video Communications (ZM), Alibaba (BABA)
• Wednesday, September 5: Salesforce (CRM), CrowdStrike (CRWD), Workday (WDAY), Snowflake (SNOW), Okta (OKTA)

These are just a few of the companies reporting earnings this week. Traders should be aware of the potential for volatility in these stocks, as well as in the overall market.

Options Strategy

Given the elevated levels of options volatility, traders may want to consider using options strategies that are designed to profit from volatility. One such strategy is the "straddle." A straddle involves buying both a call and a put option with the same strike price and expiration date. The profit potential for a straddle is limited to the difference between the strike price and the premium paid for the options.

Another option strategy that can be used to profit from volatility is the "strangle." A strangle involves buying a call option and a put option with different strike prices and the same expiration date. The profit potential for a strangle is greater than that of a straddle, but the risk is also greater.

Conclusion

Options volatility is expected to remain elevated in the coming weeks, as traders price in the potential for a more hawkish Federal Reserve. Traders should be aware of the potential for volatility in individual stocks, as well as in the overall market. Those who are comfortable with using options strategies may want to consider using a straddle or strangle to profit from volatility.