Log in Open account
UAE
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider.
Show more
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX, or any of our other products work and whether you can afford to take the high risk of losing your money.
Show less
Volatility report - week 09 - earnings, expected moves and trade setups (CAC40, CRM, SNOW, CELH)

Volatility report - week 09 - earnings, expected moves and trade setups (CAC40, CRM, SNOW, CELH)

Options 10 minutes to read
Koen Hoorelbeke

Investment and Options Strategist

Summary:  This week's volatility report outlines key trade setups for CAC40, CRM, SNOW, and CELH, targeting respective market movements. Amidst varying market conditions, we offer strategies ranging from bullish to bearish, emphasizing the critical nature of managing in-the-money options to avoid assignment risks as expiration nears.

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks.

Volatility report - week 09 (Feb 26 - Mar 01, '24)

Welcome to this week's Volatility Report, a guide for traders and investors seeking to navigate the dynamic world of stock market fluctuations. In this report, we list the expected movements and implied volatility rankings* of stocks with upcoming earnings announcements, as well as key indices and ETFs. In this edition we'll also have a look at some possible trade setups for a selection of ETF's and stocks in the list; CAC40, CRM, SNOW and CELH.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Expected moves and volatility

Volatility and Expected Moves Analysis

Expected moves**, derived from at-the-money strike prices post-earnings**, indicate potential price volatility.

In the table above you'll find the following data:

  • Volatility Comparison: Implied volatility (IV) is currently contrasted against the 30-day historical figure to assess market expectations. A significant disparity often marks a prime scenario for premium selling.
  • IV Rank Insights: IV Rank situates the current IV within the past year's range. Values above 20% generally signal higher-than-average volatility, favoring premium selling, while lower values suggest caution for such strategies.
  • Sector Highlights: Financial firms, including Morgan Stanley and Goldman Sachs, are poised to report, with anticipated modest price movements. In contrast, larger expected moves for tech companies like Microsoft and Netflix indicate market anticipation of their earnings results.
  • Strategic Considerations: For traders, higher expected moves in the tech sector suggest the potential for volatility strategies, while lower moves in financials may align with range-bound positions.
  • Highlighted Stocks:

    The list contains 4 highlighted stocks which each have 3 trade setup ideas (bullish, neutral, bearish). These ideas are listed below.

In this section of our volatility report, we're focusing on three credit and/or debit strategies that align with various market outlooks for our featured indices/etfs/stocks/.... For each underlying, we present a bullish, neutral, and bearish trade setup, designed to match your expectations for the underlying’s future price action.

Think of these strategies as starting points to shape your trading plans. Each setup is flexible – you can adjust the strike prices and the widths of the spreads (set by default at $5) to suit your trading needs. The credit spreads we've chosen are bold, with strike prices set near the current price of the stock to seek higher rewards at increased risk. Feel empowered to place these strikes further away or closer based on your own market analysis and confidence.

Remember, these setups are foundational guides. It’s essential to refine them to fit your individual trading style and outlook, ensuring they support your trading objectives and risk management preferences.

CAC 40 Index

  1. Bullish Trade Setup (Debit Call Spread):

    • Strategy: Sell a 8150 call and buy a 7950 put, expiring on 1-Mar-2024.
    • Credit Paid: €343.00.
    • Maximum Profit: €1,657.-, achieved if the CAC40 expires above €8150.
    • Maximum Risk: €343.00, which is the premium paid to open the position.
    • Breakeven: €7,984.30 (7950 strike plus the price of 1 option).

  2. Neutral Trade Setup (Iron Condor):

    • Selling an 8000 call and a 7950 put, and buying an 8100 call and a 7850 put, all expiring on 01-Mar-2024.
    • Net Credit Received: 34.80 EUR (the amount collected from selling the spread).
    • Maximum Profit: 34.80 EUR (net credit received which is the profit if CAC 40 settles between the call and put sold strikes at expiration).
    • Maximum Risk: €652.00: Limited to the difference between the width of the wings (€100 * 10) minus the net credit received (€348.00).
    • Upper Breakeven: 8000 + 34.80 = 8034.80 EUR (sold call strike plus net credit received per option).
    • Lower Breakeven: 7950 - 34.80 = 7915.20 EUR (sold put strike minus net credit received per option).

  3. Bearish Trade Setup (Debit Put Spread):

    • Buying a 7950 put and selling a 7750 put, expiring on 01-Mar-2024.
    • Debit Paid: 27.40 EUR 
    • Maximum Profit: 1,726.00: Limited to the difference between the width of the wings (€200 * 10) minus the debit paid (€274) if CAC 40 falls below the lower strike price at expiration.
    • Maximum Risk: 274.00 EUR (the cost of the spread).
    • Breakeven: 7950 - 27.40 = 7922.60 EUR (higher strike minus debit paid per option).

Salesforce.com Inc. (CRM)

  1. Bullish Trade Setup (Credit Put Spread):

    • Selling a put with a strike price of 285 and buying a put with a strike price of 280, expiring on 01-Mar-2024.
    • Premium received: $155.00 USD.
    • Maximum profit: $155.00 USD, realized if CRM stays above $285 at expiration.
    • Maximum risk: $345.00 USD (difference between strikes minus premium received).
    • Breakeven: $283.45 (sold put strike minus premium received per share).

  2. Neutral Trade Setup (Iron Condor):

    • Buying a call with a strike price of 325 and selling a call with a strike price of 320, while selling a put at 280 and buying a put at 275, all expiring on 01-Mar-2024.
    • Net premium received: $222.00 USD.
    • Maximum profit: $222.00 USD, achievable if CRM closes between the sold strikes of $320 (call) and $280 (put) at expiration.
    • Maximum risk: $278.00 USD (the difference between the strikes of the widest spread minus the net premium received).
    • Upper breakeven: $322.22 (sold call strike plus net premium received per share).
    • Lower breakeven: $277.78 (sold put strike minus net premium received per share).

  3. Bearish Trade Setup (Credit Call Spread):

    • Buying a call with a strike price of 320 and selling a call with a strike price of 315, expiring on 01-Mar-2024.
    • Net premium received: $120.00 USD.
    • Maximum profit: $120.00 USD: Credit received.
    • Maximum risk: $380.00 USD (width of the largest spread, $500 minus the credit received, $120).
    • Breakeven: $316.20 (sold strike, $315, plus credit received per share, $1.20).

The provided trade setups offer options for traders based on their market view: bullish, neutral, and bearish. The credit spread generates immediate income with defined risk and profit, the iron condor looks to benefit from CRM trading within a specific range at expiration, and the bearish put spread positions for downside movement with limited risk. It's important for traders to actively manage these positions, particularly as expiration nears, to mitigate assignment risks and secure profits.

Snowflake Inc. (SNOW)

  1. Bullish Trade Setup (Credit Put Spread):

    • Selling a put with a strike price of 220 and buying a put with a strike price of 215, expiring on 01-Mar-2024.
    • Premium received: 180.00 USD.
    • Maximum profit: 180.00 USD, which is the credit received and realized if SNOW stays above $220 at expiration.
    • Maximum risk: 320.00 USD (difference between strikes minus credit received).
    • Breakeven: $218.20 (sold put strike minus premium received per share).

  2. Neutral Trade Setup (Iron Condor):

    • Selling a call with a strike price of 260 and selling a put with a strike price of 210, while buying a call at 265 and buying a put at 205, all expiring on 01-Mar-2024.
    • Net premium received: 190.00 USD.
    • Maximum profit: 190.00 USD, achieved if SNOW trades between $260 (call) and $210 (put) at expiration.
    • Maximum risk: 310.00 USD (the difference between the strikes of the widest spread minus the net premium received).
    • Upper breakeven: $261.90 (260 strike plus net premium received per share).
    • Lower breakeven: $208.10 (210 strike minus net premium received per share).

  3. Bearish Trade Setup (Debit Put Spread):

    • Buying a put with a strike price of 220 and selling a put with a strike price of 215, expiring on 01-Mar-2024.
    • Debit paid: 175.00 USD.
    • Maximum profit: Limited and realized if SNOW drops below $215 by expiration.
    • Maximum risk: 175.00 USD (the cost of the spread).
    • Breakeven: $218.25 (higher put strike minus debit paid per share).

In these trade setups for SNOW:

  • The bullish Credit Put Spread offers a strategy for those who believe the stock will not fall below a certain price.
  • The Iron Condor is suitable for a market view where the stock price is expected to remain within a specific range, profiting from the premium decay while the stock stays between the short strikes.
  • The bearish Debit Put Spread aligns with an outlook that expects a decline in the stock's price, offering a defined risk and potential reward.

These setups provide options for traders with different market sentiments, giving them strategies to capitalize on Snowflake Inc.'s stock movement leading up to the expiration date. As always, it's essential for traders to manage their positions actively, especially when dealing with spreads that may end in the money, to avoid the risks associated with assignment and ensure control over the trade's outcome.

Celsius Holdings Inc. (CELH)

  1. Bullish Trade Setup (Long Call Spread):

    • Buying a call with a strike price of 69 and selling a call with a strike price of 74, both expiring on 01-Mar-2024.
    • Debit paid: 150.00 USD.
    • Maximum profit: 350.00 USD, achieved if CELH is at or above $74 at expiration.
    • Maximum risk: 150.00 USD (the debit paid for the spread).
    • Breakeven: $70.50 (lower strike plus premium paid per share).

  2. Neutral Trade Setup (Iron Condor):

    • Selling a call with a strike price of 74 and selling a put with a strike price of 60, while buying a call at 79 and buying a put at 55, all expiring on 01-Mar-2024.
    • Net premium received: 180.00 USD.
    • Maximum profit: 180.00 USD, realized if CELH trades between the call and put sold strikes ($74 and $60) at expiration.
    • Maximum risk: 320.00 USD (difference between the strikes of the widest spread minus the net premium received).
    • Upper breakeven: $75.80 (sold call strike plus net premium received per share).
    • Lower breakeven: $58.20 (sold put strike minus net premium received per share).

  3. Bearish Trade Setup (Long Put Spread):

    • Buying a put with a strike price of 65 and selling a put with a strike price of 60, expiring on 01-Mar-2024.
    • Debit paid: 195.00 USD.
    • Maximum profit: 305.00 USD, if CELH drops below $60 by expiration.
    • Maximum risk: 195.00 USD (the cost of the spread).
    • Breakeven: $63.05 (higher put strike minus debit paid per share).

For these setups:

  • The Long Call and Put Spreads are directional trades banking on CELH's price movement.
  • The Iron Condor is a volatility play, profiting if CELH remains within a specific range at expiration.
  • The breakevens for the debit spreads are calculated by adjusting the long strike price by the cost of the spread, while for the Iron Condor, they are adjusted by the net credit received.
  • Managing these trades is crucial, especially for spreads nearing expiration in the money, to avoid potential assignment risks.
Note about spread management: as we present our trade setups, it's crucial to address the management of spreads that approach expiration in the money. Whether your position is fully or partially in the money, standard practice recommends closing the trade before expiration. This action is taken to prevent the risk of assignment, which can lead to unintended stock positions and additional capital requirements. Proactive closure of these positions, especially in the final day leading to expiry, allows for better control over the outcome and helps avoid the complexities and potential costs associated with exercise and assignment.
 

* Understanding these metrics is important for anyone involved in volatility-based trading strategies. The 'Expected Move' is an invaluable tool that provides a forecast of how much a stock's price might swing, positively or negatively, around its earnings announcement. This insight is essential for options traders, allowing them to gauge the potential risk and reward of their positions. Read more about it here: Understanding and calculating the expected move of a stock etf index

Moreover, the 'Implied Volatility Rank' (IVR) offers a snapshot of current volatility expectations in comparison to historical volatility over the last year. This ranking helps in identifying whether the market's current expectations are unusually high or low.

In addition to the Expected Move and Implied Volatility Rank, it’s also crucial to understand the concepts of ‘Implied Volatility’ and ‘Historical Volatility’. Implied Volatility (IV) is a measure of the market’s expectation of future volatility, derived from the prices of options on the stock. On the other hand, Historical Volatility (HV) measures the actual volatility of the stock in the past.

The relationship between these two types of volatility can serve as a valuable indicator for options traders. When IV is significantly higher than HV, it suggests that the market is expecting a larger price swing in the future, which could make options more expensive. Conversely, when IV is lower than HV, it could indicate that options are relatively cheap. Some traders use this IV-to-HV ratio as a signal for when to buy or sell options premium, adding another layer of sophistication to their trading strategies.

** A crucial application of the expected move in options trading is evident in strategies such as iron condors and strangles, particularly when these are implemented through short selling. In these strategies, the expected move serves as a pivotal benchmark for setting the boundaries of the trade. For instance, in the case of a short iron condor, traders typically position the short legs of the condor just outside the expected move range. This strategic placement enhances the probability of the stock price remaining within the range, thereby increasing the chances of the trade's success. Similarly, when setting up a short strangle, traders often choose strike prices that lie beyond the expected move. This ensures that the stock has to make a significantly larger move than the market anticipates to challenge the position, thus leveraging the expected move to mitigate risk and optimize the success rate. Utilizing the expected move in this manner allows traders to align their strategies with market expectations, fine-tuning their approach to volatility and price movements.

In this report, the calculation of the expected move for each stock and index is based on a refined approach, building upon the concepts outlined in our previous article. Traditionally, the expected move can be estimated by calculating the price of an at-the-money (ATM) straddle for the expiration date immediately following the event of interest. However, in this analysis, we've adopted a variation to enhance the accuracy of our predictions.

Our method involves a blend of 60% of the price of the ATM straddle and 40% of the price of a strangle that is one strike away from the ATM position. This hybrid approach allows us to closely mirror the expected move as indicated by the implied volatility (IV), offering a more nuanced and precise estimation. By utilizing this simplified yet effective method, we are able to provide an expected move calculation that not only resonates with the underlying market sentiments but also equips traders with a practical tool for their volatility-based strategies.

For continuous insights and updates on market/options strategies, interact with me/follow my social media account on Threads.

Previous "Volatility reports": 

Previous "What are your options" articles: 

Listen to our brand new podcast: "Saxo Options Talk"

Related articles:

Previous "Investing with options" articles: 

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

    Read full article
  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
    Read full article
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
    Read full article
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
    Read full article
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
    Read full article
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
    Read full article
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
    Read full article
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
    Read full article
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
    Read full article

Disclaimer

 The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE
Products & pricing
Platforms
Accounts & service
General
Other
Legal

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.