« October 2020

IVolatility Trading Digest™

Volume 20 Issue 41
Volatility Kings Third Quarter 2020

Volatility Kings Third Quarter 2020- IVolatility Trading Digest™

Review Notes

Since third quarter earnings reporting gets underway this week, the time has come 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.

Since implied volatility of the entire market spiked up in the middle of March and has been steadily declining ever since, usual increasing implied volatility of individual stocks before earnings appear insignificant with their regular quarterly patterns harder to visualize.

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 option volume requirement is set at those with a weekly average of greater than 35K contracts. Many new initial public offerings (IPOs) and heightened uncertainty due to the Covid-19 pandemic, along with increasing hedging before the November election has increased option volume this quarter so more companies meet the volume requirement. 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 Review Notesfound 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.

Volatility Kings™ 3Q 2020


Descriptions and details for the column headings in the table above.

Price in column 3, are closing stock prices as of October 9, 2020.

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 higher of 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. Since earnings estimates were reduced at the end of the first quarter as the global economy shut down due to Covid-19 expect a lot of hoopla when the reports come in better than the expected lowered estimates. This seems like the crowd cheering for a new 50-yard hurdle record, after the hurdles were lowered.

Last Q IV in column 7 shows the Implied Volatility Index Mean (IVXM) of the puts and calls reached just before 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 after reporting low.

IV Now in column 9 is the Implied Volatility Index Mean, (IVXM) as of October 9, 2020. Depending upon the last report date the implied volatility of those having recently reported may still be declining, such as Micron Technologies (MU).

52R displays the current Implied Volatility Index Mean (IVXM) relative to the 52-week range, where .60 is above the midpoint for Amazon (AMZN) and Jumia Technologies (JMIA) at.72, while most others are closer to the bottom after they all spiked up in mid-March.

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 DocuSign (DOCU) at 2.18 and Slack Technologies (WORK) at 2.23.

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, declined 2.32 points or -9.69% last week, ending at 21.63.


In regression to the mean terms, implied volatility appears to have arrived around 20 considering increased uncertainty caused by Covid-19 and the upcoming November election compared to March pre Covid-19 in the mid teens.

By finding stocks that have a regular tendency to experience rising implied volatility ahead of earnings reports, such as Netflix (NFLX) or Pinterest (PINS) offers opportunities to gain some important 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

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. However, when opened just before reporting, when the near term implied volatility is high, the results are 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 earning 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 and with long gamma.

Some other 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. An out of the money call spread and an out-of the money put spread with the implied volatility near the52-week high like Jumia Technologies (JMIA).

Big Data? In options, we are Big Data!
For a comprehensive review and reminder, check this out
Options: Observations of a Proprietary Trader  


With the implied volatility of S&P 500 Index back near the new post Covid-19 mean confirming the price advance back toward the previous high, earnings reporting begins this week with lowered easy to beat estimates for many widely followed stocks. Our Volatility Kings™ list offers ideas to consider long and short volatility Calendar Spreads along with others.

By Jack Walker

Actionable Options™

We now offer daily trading ideas from our RT Options Scanner before the close in the IVolatility News section of our home page based upon active calls and puts with increasing implied volatility and volume.

“The best volatility charts in the business.”

Next week will include our regular Market Review including progress of both at S&P 500 Index and the Invesco QQQ Trust.

Finding Previous Issues and Our Reader Response Request


All previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue. Another source is the Table of Contents link found in the lower right side of the IVolatility Trading Digest section on the home page of our website.


CommentAs always, we encourage you to let us know what you think about how we are doing and what you would like to see in future issues. Send us your questions or comments, or if you would like us to look at a specific stock, ETF or futures contract, let us know at Support@IVolatility.com or use the blog response at the bottom of the IVolatility Trading Digest™ page on the IVolatility.com website. To receive the Digest by e-mail let us know at Support@IVolatility.com

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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IVolatility Trading DigestTM Disclaimer
IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter constitutes a recommendation to buy or sell any security. Before entering a position check to see how prices compare to those used in the digest, as the prices are likely to change on the next trading day. Our personnel or independent contractors may own positions and/or trade in the securities mentioned. We are not compensated in any way for publishing information about companies in the digest. Make sure to due your fundamental and technical analysis homework along with a realistic evaluation of position size before considering a commitment.

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