Earnings and Option Volatility Monitor

Research evidence excerpt

Earnings and Option Volatility Monitor

Daniel Motoc, CFA AC (1-212) 622-0105 Arda Sebuktekin (1-212) 270-4397 Global Markets Strategy J P M O R G A N

daniel.motoc@jpmchase.com arda.sebuktekin@jpmchase.com Earnings and Option Volatility

J.P. Morgan Securities LLC Monitor

Bram Kaplan, CFA AC (1-212) 272-1215 Krati Gupta (91-22) 6157 3686 24 July 2026

bram.kaplan@jpmorgan.com krati.x.gupta@jpmchase.com

USING THE IMPLIED VOLATILITY OF OPTIONS TO FORECAST THE PRICE IMPACT OF

EARNINGS ANNOUNCEMENTS

An earnings announcement usually causes a stock price to gap up or down. Stock price gaps cause spikes in realized volatility. By

analyzing the term structure of option implied volatility, we believe it is possible to deduce the option market’s expectation for

the size of an earnings-related stock price move. Information on the size of the earnings-related price move is built into the

implied volatility term structure by market participants who trade options in the days and weeks prior to the earnings

announcement. Speculators and hedgers usually bid up shorter-term implied volatility in anticipation of a stock price move.

Shortly before an earnings announcement, a balance of option buyers and sellers reflects the option market’s expectation for the

size of the earnings-related stock price move. Options provide information only about the size of a price move; they do not imply

the direction (for instance, if the implied, expected size of a move is 5%, the stock may move up or down by 5% following the

announcement).

Figure 2 shows the expected size of potential earnings-related stock price moves for Russell 1000 companies that have

average daily notional option volume in excess of $10M and are expected to report over the next week.1 This minimum