Volatility Kings™ is our list of companies having a tendency to experience increasing option implied volatility as their quarterly reporting dates approach. Increasing implied volatility reflects uncertainty or the width of the possible stock price distribution on the report date. While these companies have experienced increasing implied volatility when they previously reported, the level of uncertainty for the current report may not be comparable. Indeed, some companies are on the list one quarter and not the next while others seem to remain on our list quarter after quarter. Since the focus is on earnings, others with high-implied volatility due to takeover speculation or FDA announcement events are not included along with those lacking sufficient liquidity due to low option volume.
Volatility Kings 4Q Master List
Price shown in column 4 are closing prices as of Friday January 10, 2014.
Next Rep in column 5 is the next expected reporting date. Check these dates as these are only estimates and the companies routinely change their reporting dates. Time in column 6 is when during the day to expect the report, where B is before the open, A is after close and D is during market hours.
Estimate in column 7 is the current consensus earnings estimate that may also change before the report.
Last Q IV in column 8 is the implied volatility index mean (IVXM) of the puts and calls reached just before the last quarterly report, but may not necessarily be relevant this quarter, especially since market implied volatility as measured by the VIX is now lower at 12.14 than in some previous quarters.
IV Min Ex in column 9 shows the implied volatility low after the last earnings report making it easier to compare the pre-report high to the subsequent low.
IV Now in column 10 is the implied volatility index mean, (IVXM) as of Friday January 10, 2014.
IV Est/Now in column 11 is 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 report date, but many have already started increasing in anticipation of their 4Q reports.
Comments and Observations
The typical pattern is for implied volatility to decline for 4-6 weeks after reporting followed by a subsequent rise for about 3-4 weeks before the next report date, but they vary with each having its own unique pattern.
Not surprisingly those with be best ratios are the ones that will be reporting later since they may still be declining since last reporting, such as BlackBerry (BBRY), Joy Global (JOY) and Lululemon (LULU).
Those with ratios less than 1 for example, Chipotle (CMG), Mankind (MNKD) and Pandora (P) are currently experiencing high-implied volatility for reasons that are most likely unrelated to their upcoming earnings report.
Some experience predictable declines after reporting such as SanDisk (SNDK) having gone from 41 to 24 although it is now back at 39 in anticipation of their 4Q report so the ratio of 1.05 does not tell the whole story. Since there are quite a few in this category, use the Master List as a reference and check each of their volatility charts using either our complimentary Basic Options or our very affordable subscription based Advanced Historical Data service.
For example, here is the updated SanDisk 4Q Basic Options volatility chart for the last year with green arrows indicating the decline in implied volatility at previous earnings reports. Note the regular pattern of advances into the earnings report date and the subsequent declines along with the spikes in option volume shown in the lower chart. Scheduled to report 4Q earnings on January 22 after the close, it is likely to advance somewhat higher and then decline on the report.
In an effort to keep the list size manageable we deleted those with 1 week average options volume less than 5,000 contracts since low volume means wider bid/ask spreads and more slippage that can represent a substantial part of any potential gain for a pure volatility trade. For example, this quarter we deleted Akamai (AKAM), Mercardo Libre (MELI), Panera Bread (PNRA), Open Table (OPEN) and Under Armor (UA).