Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Volatility report - week 49
Koen Hoorelbeke
Investment and Options Strategist
Summary: Explore stock market fluctuations with our weekly Volatility Report. This guide lists expected movements and implied volatility rankings of stocks with upcoming earnings, key indices, and ETFs. A list of economic indicators to be released in the coming week which might affect volatility is also provided. Useful for investors and traders who want to stay up to date about events which have influence on volatility.
Volatility report - week 49
(Dec 04 - Dec 08, '23)
Welcome to this week's Volatility Report, a guide for traders and investors seeking to navigate the dynamic world of stock market fluctuations. In this report, we list the expected movements and implied volatility rankings of stocks with upcoming earnings announcements, as well as key indices and ETFs.
Understanding these metrics is important for anyone involved in volatility-based trading strategies. The 'Expected Move' is an invaluable tool that provides a forecast of how much a stock's price might swing, positively or negatively, around its earnings announcement. This insight is essential for options traders, allowing them to gauge the potential risk and reward of their positions. Read more about it here: Understanding and calculating the expected move of a stock etf index
Moreover, the 'Implied Volatility Rank' (IVR) offers a snapshot of current volatility expectations in comparison to historical volatility over the last year. This ranking helps in identifying whether the market's current expectations are unusually high or low.
In addition to the Expected Move and Implied Volatility Rank, it’s also crucial to understand the concepts of ‘Implied Volatility’ and ‘Historical Volatility’. Implied Volatility (IV) is a measure of the market’s expectation of future volatility, derived from the prices of options on the stock. On the other hand, Historical Volatility (HV) measures the actual volatility of the stock in the past.
The relationship between these two types of volatility can serve as a valuable indicator for options traders. When IV is significantly higher than HV, it suggests that the market is expecting a larger price swing in the future, which could make options more expensive. Conversely, when IV is lower than HV, it could indicate that options are relatively cheap. Some traders use this IV-to-HV ratio as a signal for when to buy or sell options premium, adding another layer of sophistication to their trading strategies.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
Expected moves and volatility
indices and etf's
S&P 500 Index (SPX)
- Name: S&P 500 Index (SPX)
- Price: 4594.63 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 50.964 (= +/- 1.11%)
- IV Rank: 21.79%
- Implied Volatility (IV): 10.54% < Historical 30d Volatility: 12.79%
Nasdaq 100 Index (NDX)
- Name: Nasdaq 100 Index (NDX)
- Price: 15997.58 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 245.35 (= +/- 1.53%)
- IV Rank: 5.9%
- Implied Volatility (IV): 14.49% < Historical 30d Volatility: 16.79%
SPDR S&P 500 ETF Trust (SPY)
- Name: SPDR S&P 500 ETF Trust (SPY)
- Price: 459.1 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 4.99 (= +/- 1.09%)
- IV Rank: 2.77%
- Implied Volatility (IV): 11.01% < Historical 30d Volatility: 12.81%
Invesco QQQ Trust, Series 1 (QQQ)
- Name: Invesco QQQ Trust, Series 1 (QQQ)
- Price: 389.94 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 5.77 (= +/- 1.48%)
- IV Rank: 2.45%
- Implied Volatility (IV): 15.18% < Historical 30d Volatility: 16.80%
iShares Russel 2000 Index Fund (IWM)
- Name: iShares Russel 200 Index Fund (IWM)
- Price: 184.91 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 3.93 (= +/- 2.13%)
- IV Rank: 29.02%
- Implied Volatility (IV): 19.34% < Historical 30d Volatility: 24.48%
Volatility Index (VIX)
- Name: Volatility Index (VIX)
- Price: 12.63 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-13
- Days to Expiry (DTE): 9
- Expected Move: plus or minus 1.452 (= +/- 11.50%)
- IV Rank: 42.81%
- Implied Volatility (IV): 60.67% < Historical 30d Volatility: 64.62%
Suggestions? Ideas? Let us know!
Expected moves and volatility
stocks with earnings
GitLab Inc. (GTLB) - Earnings Date: 2023-12-04, before the bell
- Name: GTLB (GTLB)
- Earnings date: 2023-12-04, before
- Price: 52.47 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 7.316 (= +/- 13.94%)
- IV Rank: 50.62%
- Implied Volatility (IV): 76.43% > Historical 30d Volatility: 55.78%
Lululemon Athletica Inc. (LULU) - Earnings Date: 2023-12-07, after the bell
- Name: LULU (LULU)
- Earnings date: 2023-12-07, after
- Price: 466.61 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 29.11 (= +/- 6.24%)
- IV Rank: 49.15%
- Implied Volatility (IV): 36.28% > Historical 30d Volatility: 24.05%
DocuSign Inc. (DOCU) - Earnings Date: 2023-12-07, after the bell
- Name: DOCU (DOCU)
- Earnings date: 2023-12-07, after
- Price: 45.99 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 5.182 (= +/- 11.27%)
- IV Rank: 41.51%
- Implied Volatility (IV): 60.75% > Historical 30d Volatility: 33.58%
C3Ai Inc. (AIUS) - Earnings Date: 2023-12-06, after the bell
- Name: AIUS (AIUS)
- Earnings date: 2023-12-06, after
- Price: 30.89 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 4.18 (= +/- 13.54%)
- IV Rank: 15.21%
- Implied Volatility (IV): 85.03% > Historical 30d Volatility: 67.9%
MongoDB Inc. (MDB) - Earnings Date: 2023-12-05, after the bell
- Name: MDB (MDB)
- Earnings date: 2023-12-05, after
- Price: 435.23 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 46.25 (= +/- 10.63%)
- IV Rank: 34.69%
- Implied Volatility (IV): 59.55% > Historical 30d Volatility: 50.67%
Nio Inc. (NIO) - Earnings Date: 2023-12-05
- Name: NIO (NIO)
- Earnings date: 2023-12-04, nan
- Price: 7.15 (2023-12-04)
- Expiry used to calculate expected move: 2023-12-08
- Days to Expiry (DTE): 4
- Expected Move: plus or minus 0.608 (= +/- 8.50%)
- IV Rank: 36.91%
- Implied Volatility (IV): 69.77% > Historical 30d Volatility: 54.88%
A crucial application of the expected move in options trading is evident in strategies such as iron condors and strangles, particularly when these are implemented through short selling. In these strategies, the expected move serves as a pivotal benchmark for setting the boundaries of the trade. For instance, in the case of a short iron condor, traders typically position the short legs of the condor just outside the expected move range. This strategic placement enhances the probability of the stock price remaining within the range, thereby increasing the chances of the trade's success. Similarly, when setting up a short strangle, traders often choose strike prices that lie beyond the expected move. This ensures that the stock has to make a significantly larger move than the market anticipates to challenge the position, thus leveraging the expected move to mitigate risk and optimize the success rate. Utilizing the expected move in this manner allows traders to align their strategies with market expectations, fine-tuning their approach to volatility and price movements.
In this report, the calculation of the expected move for each stock and index is based on a refined approach, building upon the concepts outlined in our previous article. Traditionally, the expected move can be estimated by calculating the price of an at-the-money (ATM) straddle for the expiration date immediately following the event of interest. However, in this analysis, we've adopted a variation to enhance the accuracy of our predictions.
Our method involves a blend of 60% of the price of the ATM straddle and 40% of the price of a strangle that is one strike away from the ATM position. This hybrid approach allows us to closely mirror the expected move as indicated by the implied volatility (IV), offering a more nuanced and precise estimation. By utilizing this simplified yet effective method, we are able to provide an expected move calculation that not only resonates with the underlying market sentiments but also equips traders with a practical tool for their volatility-based strategies.
Suggestions? Ideas? Let us know!
Macro events
which might influence volatility
Below is a list of economic indicators which might cause some volatility in the (US) markets:
Tuesday, 5 Dec 2023
- ISM Non-Manufacturing PMI
- JOLTS Job Openings
Wednesday, 6 Dec 2023
- ADP Nonfarm Employment Change
Thursday, 7 Dec 2023
- Initial Jobless Claims
Friday, 8 Dec 2023
- Average Hourly Earnings (MoM)
- Nonfarm Payrolls
- Unemployment Rate
FOMC Blackout Periods
Federal Reserve staff, including those at the Chicago Fed, generally do not speak publicly between a week prior to the Saturday preceding a Federal Open Market Committee (FOMC) meeting and the Thursday following that meeting. This time is referred to as the FOMC blackout period.
December blackout period is between 2 and 14 December 2023.
Feedback? Ideas? Suggestions? Let us know.
Previous Volatility Reports:
- 28 Nov 2023: Volatility report - week 48 - 27 nov 23 -- 01 dec 23
Related articles:
- From zero to hero - buying options
- From zero to hero - selling options
- From zero to hero - option strategies
- From zero to hero - options lexicon
- Why options strategies belong in every traders toolbox
- Understanding and calculating the expected move of a stock etf index
- Understanding Delta - a key guide for Investors and Traders - part 1
- Understanding Delta - a key guide for Investors and Traders - part 2
- Trading 0DTEs - get your feet wet - without drowning - part 1
- Trading 0DTEs - get your feet wet - without drowning - part 2
Previous "What are your options" articles:
- 21 Nov 2023: What are your options - Nvidia earnings
- 08 Nov 2023: What are your options - Disney earnings
- 26 Oct 2023: What are your options - Nasdaq Selling Premium
- 29 Aug 2023: What are your options - Salesforce earnings
- 25 Aug 2023: What are your options - the Qs - Nasdaq etf
- 23 Aug 2023: What are your options - Nvidia - earnings - market reactions
- 21 Aug 2023: What are your options - swing trading semi-conductors - stocks vs options
- 18 Aug 2023: What are your options - using TLT as an inverse proxy for the 10 year yield
Previous "Investing with options" articles:
- 30 Nov 2023: Investing with options - striking gold (GLD)
- 23 Nov 2023: Investing with options - hedging the Nasdaq 100
- 17 Nov 2023: Investing with options - Nvidia - pre-earnings
- 10 Nov 2023: Investing with options - AdYen - post investor day
- 31 Oct 2023: Investing with options - Novo Nordisk earnings
- 31 Oct 2023: Investing with options - Apple earnings
- 24 Oct 2023: Investing with options - Amazon earnings
- 24 Oct 2023: Investing with options - Meta Platforms earnings
- 23 Oct 2023: Investing with options - Alphabet earnings
- 20 Oct 2023: Investing with options - Microsoft earnings
- 18 Oct 2023: Investing with options - Tesla earnings
- 17 Oct 2023: Investing with options - long bonds - TLT
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.
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