Hey guys, let me preface by saying I know very little about options but mainly trade equities around earnings releases.
I was just wondering to what extent option Greeks affect reaction to earnings releases? If you have 2 similar stocks, reporting similar earnings and both gap up 10%, one’s iv is skewed more than the other, would this have a more pronounced effect on intraday movement compared to the other?
Simply put, to what extent could skew or any other option metric (prior to the release) affect intraday movement AFTER the open? Or is there no correlation at all? Tried to find research but is quite inconclusive.
I’d like to hear your experiences, Thanks!
Greeks affecting earnings movement?
byu/GooseOtherwise9181 inoptions
Posted by GooseOtherwise9181
4 Comments
Everything you say is theory. Everything could, should to all of your questions. Also, the opposite. This is listed in the dow theory.
Tail does not often wag dog. The underlying movement is the overwhelming influence. There are some more rare exceptions. Take gamma squeeze for instance: MM short position[s] are bolstered by stock purchases they don’t already own. Even then, the shares are bought somewhere and reflect in the activity of that book.
First you have to ask in what ways, if any, option trading can influence stock price? And the short answer is, there are very few ways that option trading can influence stock price, so in general, no, options don’t move stock price at any time, which includes around earnings.
One of the exceptional ways is a [gamma squeeze](https://optionalpha.com/learn/gamma-squeeze). So unless a gamma squeeze happens at the same time as an earnings event (extremely unlikely, since gamma squeezes are already exceptionally rare), you’ll have to keep looking.
So if options trading as a whole has little to no chance of impacting underlying price, greeks have even less of a chance. Not the greeks ever impact anything, they are observation metrics of the market, not market drivers.
Remember, greeks simply measure things. What impacts earnings is the expansion and contraction of volatility primarily. Volatility is simply a complicated term for movement, the higher volatility is, the more expected movement there is.