The Broader Markets
Last Week – SPY was lower by about 2% last week, in line with the 2% move options were pricing. Implied volatility closed higher on the week.
This Week – SPY options are pricing about a 2.5% move this week (about $11 in either direction).
Implied Volatility / VIX – The VIX closed last week above 27, up from 23 the week before. The majority of that move higher was on Friday. Mid-week the VIX got as low as 20 as the SPY topped out near $457 before its intra-week decline of almost 4%.
Expected Moves for This Week (via Options AI)
- SPY 2.5% (about $11)
- QQQ 3.3% (about $12)
- IWM 3.3% (about $7)
- DIA 2.2% (about $8)
In the News
Inflation, the Federal Reserve, and Russia/Ukraine headlines continue to cause day-to-day sentiment shifts in the market. When uncertainty reigns, implied volatility tends to make large moves as well. Last week was a prime example as the VIX saw both 20 and 30 within a few days of each other. Traders should be aware of the implied volatility backdrop when entering new positions as that can help inform strategy.
Using SPY as an example, at its peak last week near $457, the VIX was 20. A bearish position placed on that day could take the form of a put spread purchase, or a call spread sale. In the case of the credit call spread sale, the timing would have worked from a delta perspective as the markets reversed lower, but implied volatility spiked significantly with that move lower, adding a drag on potential gains of those short deltas.
Conversely, following a decline and a VIX above 30, a trader can choose between a call/call spread purchase or a credit put/put spread sale to position for a rally. In the case of the put spread sale, on a market rally implied volatility will decline, adding vega profits to delta profits. Conversely, a debit call spread will see delta gains on a rally, but be negatively affected by sharply declining IV.
This is much more of a factor when implied volatility is seeing large swings (as it is now), affecting near-term options in an atypical manner.
Links go to the Options AI calendar where you can see the other companies each day and click through to see charts (free to use). Recent earnings moves (actual) start with the most recent:
Roblox RBLX / Expected Move: 15.9% / Recent moves: +42%, -1%, +21%
Airbnb ABNB / Expected Move: 8.5% / Recent moves: +13%, +1%, +4%
Wynn WYNN / Expected Move: 6.2% / Recent moves: -2%, +8%, -1%
Upstart UPST / Expected Move: 21% / Recent moves: -18%, +26%, +3%
Shopify SHOP / Expected Move: 10.5% / Recent moves: +7%, -1%, +11%
Nvidia NVDA / Expected Move: 9.3% / Recent moves: +8%, +4%, -1%
Applied Materials AMAT / Expected Move: 6.4% / Recent moves: -5%, -2%, -1%
Cisco CSCO / Expected Move: 5.3% / Recent moves: -5%, +4%, +1%
Palantir PLTR / Expected Move: 11.5% / Recent moves: -9%, +11%, +9%
Walmart WMT / Expected Move: 3.8% / Recent moves: -2%, 0%, +2%
Roku ROKU / Expected Move: 13.2% / Recent moves: -8%, -4%, +12%
Fiverr FIVR / Expected Move: 15.6% / Recent moves: +10%, -24%, -2%
Draftkings DKNG / Expected Move: 12.5% / Recent moves: -2%, +2%, -7%
John Deere DE / Expected Move: 4.9% / Recent moves: +5%, -2%, +1%
Based upon publicly available information derived from option prices at the time of publishing. Intended for informational and educational purposes only and is not any form of recommendation of a particular security, strategy or to open a brokerage account. Options price data and past performance data should not be construed as being indicative of future results and do not guarantee future results or returns. Options involve risk, including exposing investors to potentially significant losses and are therefore not suitable for all investors. Option spreads involve additional risks that should be fully understood prior to investing. Securities trading is offered through Options AI Financial, LLC a registered broker-dealer.