84% of Companies Beat Earnings — Here's Why Selling Options Into Earnings Still Works

Key Concepts

• IVR (Implied Volatility Rank): A metric used to determine if current implied volatility is high or low relative to its historical range over the past year.
• Expected Move: The range of price movement for an underlying asset that the options market is pricing in for a specific timeframe.
• Jade Lizard: An options strategy consisting of a short put spread and a short call, designed to collect premium with a neutral-to-bullish outlook.
• Zebra (Zero-cost Butterfly): An options strategy involving a long butterfly spread where the cost is offset by selling other options, often used to profit from minimal movement.
• FOMC (Federal Open Market Committee): The branch of the Federal Reserve that determines the direction of monetary policy, specifically interest rates.
• ISM Services PMI: A key economic indicator measuring the health of the services sector; a reading above 50 indicates expansion.

---

Market Performance and Economic Context

• Nasdaq and S&P 500 Records: April saw the Nasdaq 100 surge 15.64%, marking its strongest month in the last 20 years (ranking 1st out of 241 months). The S&P 500 gained 10.4%, placing it in the top five months over the same period.
• Earnings Season Dynamics: Despite 84% of S&P 500 companies beating earnings per share (EPS) estimates and 81% beating revenue expectations, the market reaction remains "50/50." Many companies that reported positive earnings saw their stock prices decline, suggesting that "beating" expectations is not currently sufficient to drive prices higher.
• Macroeconomic Indicators: The Fed held interest rates steady. Meanwhile, oil prices have intensified, with California gas prices reaching $6 per gallon, the highest level since 2023.

Volatility and Expected Moves

• Market Sentiment: The VIX (Volatility Index) is currently in the 17 handle, indicating that market fear is relatively low.
• Expected Move Compression: The expected move for the SPX for the week of May 4th started at $98 but quickly compressed to $71, signaling that the market is not pricing in significant volatility despite a busy week of economic data (ADP employment, jobs report, and nonfarm payrolls).

Asset Class Analysis

• Bonds (TLT): Bonds have experienced their fourth narrowest monthly range in 20 years. The team maintains a static long position in TLT, noting that while IVR has ticked up, it remains low (18%).
• Currencies (6E - Euro): The Euro showed a 59% increase in IVR relative to the previous week. The presenters suggest that this elevated volatility is likely driven by geopolitical risk rather than significant price movement, making an Iron Condor a potential strategy.
• Individual Stock Movers:
  • Upside: Intel (+20% last week, +10% today) and Constellation Brands.
  • Downside: Robinhood (HOOD) down 12%, Moderna down 11%, and Domino’s Pizza (DPZ). The presenters expressed interest in selling short puts on these names following their decline.

Strategic Perspectives

• Cyclical Rotation: The presenters discussed the cyclical nature of the market. While tech stocks have led the recent rally, there is a noted divergence where some Dow Jones stocks have lagged. The team acknowledged the temptation to rotate out of tech into laggard sectors, emphasizing that "everything is cyclical."
• Strategy Adjustments: The team plans to close a Jade Lizard position that is approaching its call spread strike and intends to look for opportunities to sell puts on stocks that have experienced significant pullbacks (e.g., HOOD, Moderna).

Synthesis and Conclusion

The market is currently characterized by historically strong performance in major indices, yet it faces a disconnect where positive earnings beats are failing to consistently lift stock prices. While volatility is low and the market is not pricing in large swings, the team remains focused on managing existing positions—such as the long bond play and the expiring Jade Lizard—while looking for tactical opportunities in stocks that have seen sharp, non-earnings-related sell-offs. The upcoming week’s economic data, including the jobs report, remains the primary catalyst to watch for potential regime shifts.