The Broader Markets
Last Week – SPY was higher by about 6% on the week, a much larger move than the 2.8% move options were pricing. Implied volatility collapsed from elevated levels on the market’s move higher.
This Week – SPY options are pricing about a 1.8% move this week (about $8 in either direction).
Implied Volatility / VIX – The VIX closed last week near 24, down from a 31 close the prior Friday.
Expected Moves for This Week (via Options AI)
- SPY 1.8% (about $8)
- QQQ 2.4% (about $8.50)
- IWM 2.4% (about $5)
- DIA 1.7% (about $6)
In the News
In late February, with Tesla trading near $800 we highlighted how options had been underpricing the stock’s large swings since its parabolic breakout in Oct ’21:
Options have a difficult job pricing those sorts of stock moves. Looking ahead, options are pricing about a $45 move in either direction for this week and about a $105 move for the month of March, even though the stock has seen those types of moves in a single day recently. Out of the money calls were typically skewed higher (IV) when the stock was making its run higher last year. That has not been the case recently with a more normal curve skew (over the next few weeks) and Put/Call ratios just slightly tilting towards calls. Bottom line, Tesla options have been underpricing most of the stock’s moves since last Fall and and continue to price moves of only about $100 month to month. Options implied volatility doesn’t always reflect realized volatility because market makers don’t want to be caught holding the bag on theta and collapsing IV when the music stops.
In the past two weeks, TSLA made a low near $760 (a double bottom from late February) and rallied with the broader market last week to close above $900 on Friday. That move to the upside was about the move options were pricing for March (with a week remaining) and implied volatility was lower on the move higher. However, the entirety of its move from $760 to nearly $910 came in the span of just a few days.
IV is lower and the stock is not seeing the large upside skew to high vol out of the money calls than it did during its moves higher at the end of 2021. Options are pricing about a 5% move this week and about 11.5% out to April 22nd:
Earnings
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:
Nike NKE / Expected Move: 7.3% / Recent moves: +6%, -6%, +16%
Adobe ADBE / Expected Move: 5.8% / Recent moves: -10%, -3%, +3%
Phunware PHUN / Expected Move: 17.5% / Recent moves: +5%
NIO NIO / Expected Move: 11.1% / Recent moves: -3%, -3%, +2%
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.
