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# Predicting an options movement before earnings

Discussion in 'Options' started by cfredstan, Jul 7, 2009.

1. ### cfredstan

You hear people say "The options imply that XYZ is going to move 10% tomorrow when earnings are released."

How do they calculate this?

I do remember hearing something along the lines that they take the ATM prices to calculate it. Let's use AA for its earnings tomorrow:
(All prices as of Tuesday after market close)
Stock Price: \$9.41
ATM Call Price: \$.39
ATM Put Price: \$.97
You add these together: .39+.97=1.36
You divide it by the current stock price: 1.36/9.41=.145
This gives you the possible movement of : 14.5%

Is this right? I could be completely wrong.

Let me know.

2. ### nazzdack

1) Ideally, it's the front-month straddle-premium with respect to the strike price if the stock is trading very close to the strike price.
2) Generally, it's the front-month strangle-premium with respect to each of the strike prices of the strangle.

3. ### Kevin Schmit

No.

Subtract the ATM straddle priced at your estimate of IV after the post earnings crush, say .78.

1.36 - .78 = .58

then divide by the price

4. ### IV_Trader

"XYZ" is halted now

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