As earnings season approaches, some big names could be unusually active.
Screening for mega-cap names with high implied earnings moves versus average moves, Goldman Sachs’ options research team found that JPMorgan, 3M and Intel are expected to move much more than history might indicate.
Implied moves on earnings are determined by looking at options prices to see how much traders are willing to pay (or receive) for exposure to potential moves, up and down, around earnings.
Goldman’s team then compared those implied moves to actual historical moves to see where an especially large move is being priced into the options.
Among mega-cap equities, JPMorgan is the standout, with options traders expecting a move 5.9 times greater than its average move over the last eight quarters. But that’s not because traders are expecting the stock to be rocked; it’s just because the median move over the last eight quarters rounds to 0 percent, compared to the implied move this quarter of 3 percent.
It’s a similar story for 3M, which has an implied move of 3 percent, compared with an average move of 1 percent.
The story is a bit more interesting for Intel, which has an implied move of 7 percent, compared with a median move of 2 percent.
It’s been a tough year for Intel, which reports earnings on Tuesday. The stock is down 14 percent in 2015, and was hit hard in March when it cut its revenue guidance for the first quarter. The actual numbers, then, are expected to move the stock big-time.
Of course, it isn’t particularly unusual for an implied move to exceed the average historical move. If a trader simply buys a call option or a put option, their loss is limited to the options premium laid out, but their potential profits are much larger (in this case, because the company could report blowout earnings or severely disappointing numbers). Thus, the implied move is a sort of average of all the possible moves—including very large ones.
Still, especially large divergences between the implied move and the historical moves can be telling.
For Andrew Keene, an options trader with Keene on the Market, the divergences that Goldman points may indicate stocks where the options are overpriced.
“I want to take advantage of the fact that the implied movement in these three particular stocks is very high compared to how they historically have moved over the last eight quarters,” Keene said.
In other words, Keene would recommend being a seller, rather than buyer, of options in these names—particularly 3M, which has only seen a post-earnings move as large as the implied 3.3 percent once over the past two years.
On the other side of the spectrum, Amazon is the mega-cap pricing into the lowest implied move compared to its recent history. Over the last eight quarters, a move of 10 percent is the norm, but Amazon options are only pricing in a 9 percent move.
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