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. However, the degree 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 excluded along with the others lacking sufficient liquidity due to low option volume.
Market Review
S&P 500 Index (SPX) ?on the decline last Wednesday it closed at 1946.16 just below the the upward sloping trendline from the November 16, 2012 low that defines the intermediate term trend were we expected support as noted last week.?Then Thursday after trading as low as 1926.42, it closed at 1946.17 up just .01 but, a reversal nevertheless confirming support at the upward sloping trendline at 1949.12 setting the stage for Friday?s 21.73-point advance.
CBOE Volatility Index? (VIX) ?confirming the reversal VIX open gap lower Friday after reaching a high of 17.89 Thursday. While the VIX Futures premium remained in the yellow caution zone Friday at 6.12% the CBOE Skew Index (SKEW) ?closed down 7.96 for the week as out-of-the money put volume declined, providing further confirmation the reversal is likely to continue higher for the next few days.
As the S&P 500 Index continues higher watch to see if the iShares Russell 2000 (IWM) ?can follow higher after testing the critical 107.50 level that would have set off a double top on a lower close. Any further advance will also mean breadth is starting to improve after the NYSE McClellan Summation Index declined 773.58 points reaching 35.18 Friday.
For those interested in volatility strategies, here is our updated quarterly Volatility Kings master list for 3Q with few new additions as well as some deletions.
Volatility Kings
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In an effort to keep the list size manageable and focused upon the ones with good options liquidity, we deleted those with one week and one month average volume less than 10,000 contracts, although volume may increase as the earnings dates approach. Accordingly, this quarter the eliminations included ANF, ARNA, CMG, HLF, SPLK and SPWR; the new additions were AVP, GPRO and LNKD.
Price in column 4 are closing prices as of Friday October 3, 2014.
Next Rpt in column 5 is the next expected reporting date. Check them often as these are only estimates and companies routinely change their reporting dates. Time in column 6 is the time 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 per share, also subject to change before the report date.
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. Further the near term at-the-money implied volatility could be considerably higher than the index mean.
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. For some, the implied volatility is still declining so there may still be a lower low.
Events unrelated to earnings reports can also affect implied volatility, such as the recent market decline that boosted implied volatility for most stocks.
IV Now in column 10 is the implied volatility index mean, (IVXM) as of October 3, 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 next report date and many have already started increasing anticipating the next report.
To aid in identifying the implied volatility highs and lows along with other details, make sure to check the volatility charts at either our complimentary Basic Options or our more detailed Advanced Historical Data pages on our website.
Summary
After a rapid decline, the S&P 500 Index made a reversal last Thursday and looks like it will continue higher for the next few days and perhaps even longer if the iShares Russell 2000 follows higher and breadth begins improving. In the meanwhile, since implied volatility increased on the decline there are now more opportunities to sell some volatility assuming the S&P 500 Index continues higher.