What Major Earnings Do to SPX Intraday Ranges

Key Concepts

• Zero Day to Expiration (Zero DTE) Options: Options contracts expiring on the same day they are traded.
• Intraday Range: The difference between the highest and lowest price of an asset during a single trading day.
• Mag 7: Refers to the seven largest publicly traded companies in the US stock market (originally Apple, Microsoft, Google, Amazon, Nvidia, Tesla, and Meta).
• SPX: The S&P 500 index, a market-capitalization-weighted index of the 500 largest publicly traded companies in the United States.
• VIX: The CBOE Volatility Index, a real-time market index representing the market's expectation of 30-day volatility.
• Positive Drift: The tendency of the market to move upwards over time.
• Skew: In this context, refers to the asymmetry in the probability distribution of price movements (more frequent small gains vs. less frequent large losses, or vice versa).

Large Cap Earnings Impacts on S&P: A Detailed Analysis

This analysis, conducted by Tasty Live’s research team, investigates the impact of large-cap earnings announcements on intraday S&P 500 behavior, specifically for zero-day index option traders. The core question addressed is whether earnings days exhibit statistically significant differences compared to average trading days.

I. Background & Initial Considerations

The discussion begins by acknowledging the typical perception that earnings season introduces risk, particularly for options traders. However, the unique structure of S&P index options mitigates some of these risks. Positions aren’t affected by after-hours or pre-market moves, and the broad-based nature of the index reduces single-stock exposure. The initial question posed is whether earnings days are meaningfully different from other trading days, given these factors. A preliminary estimate suggests any difference is statistically borderline unimportant, perhaps around 2% in volatility.

II. Methodology & Data

The research team analyzed six years of earnings data (409 events total) from a basket of prominent S&P components: Apple, Amazon, AVGO, Berkshire Hathaway, Google, JPMorgan Chase, Eli Lilly, Meta, Microsoft, Nvidia, Tesla, Visa, Walmart, and XLM. The analysis categorized days based on earnings announcements:

• Anticipation Day: The day before earnings announcements for stocks reporting before market open (e.g., XOM, Eli Lilly, JPMorgan).
• Reaction Day: The day after earnings announcements for stocks reporting after market close (e.g., Apple, Amazon, Google).
• Overall: A baseline comparison using six years of average S&P behavior.

The data was then segmented into three groups for analysis: the entire basket of stocks, the “Magnificent 7” (originally Apple, Microsoft, Google, Amazon, Nvidia, Tesla, and Meta), and the top three S&P components (currently Google, Nvidia, and Apple – Microsoft recently fell out of the top three with a market cap of $3.2 trillion).

III. Findings: Overall Basket Analysis

The analysis of the entire basket revealed surprisingly minimal differences between earnings-related days and average trading days.

• Up Frequency: The S&P exhibited a 54% frequency of upward movement, aligning with the expected positive drift.
• Average Move: The average up day was 0.62%, and the average down day was 0.68%, indicating a slightly wider range to the downside but overall similar behavior.
• Intraday Range: The average intraday range was approximately 1.2%, consistent with a VIX level of 16-19 (representing roughly a 1% move in either direction). This suggests the VIX is generally accurately priced.
• Anticipation Day: Showed a slight (0.02%) skew towards the upside, but the difference was negligible.
• Reaction Day: Exhibited a slight skew towards the downside, hinting at a “sell the news” phenomenon, but again, the difference was minimal.

IV. Findings: Magnificent 7 & Top Three Analysis

The analysis became slightly more pronounced when focusing on the Magnificent 7 and the top three components:

• Magnificent 7: Anticipation days showed a more 50/50 split between up and down movements. Reaction days exhibited slightly larger downside moves compared to upside moves, though the difference remained small (0.03%-0.05%).
• Top Three (Google, Nvidia, Apple): These stocks demonstrated more volatility on reaction days, with wider intraday ranges, as expected given their significant weighting in the S&P 500.

V. Key Arguments & Perspectives

The primary argument presented is that, for zero DTE traders, earnings season does not necessitate a significant change in trading strategy. While larger companies (Mag 7, Top 3) exhibit slightly increased volatility on reaction days, the effect is often statistically insignificant for practical trading decisions. The research challenges the common assumption that earnings announcements create substantial market disruption. The speaker emphasizes that for a statistician, the findings might be noteworthy, but for a trader, the differences are too small to warrant a change in approach.

Notable Quote: “It’s kind of inconclusive, which is… that’s correct. It’s a little bit surprising.” – Speaker, reflecting on the lack of a clear trading signal from the data.

VI. Actionable Insights & Recommendations

The research suggests the following for zero DTE traders:

• Normal Trading Leading into Earnings: Maintain standard trading strategies leading up to earnings announcements.
• Prepare for Increased Price Action Post-Earnings: Widen spreads and potentially reduce delta exposure (e.g., move from 30 deltas to 20 deltas for short positions) following major earnings announcements to account for potentially larger intraday ranges.
• Be Aware of Concentration Risk: Recognize that earnings from the largest components (Apple, Google, Nvidia) can have a more pronounced impact on the S&P 500.

VII. Conclusion

The analysis concludes that while earnings announcements do introduce some degree of volatility, the impact on the S&P 500 is often less significant than commonly perceived, particularly for zero DTE traders. The research highlights the importance of data-driven analysis and challenges conventional wisdom regarding earnings season trading. The key takeaway is that a “business as usual” approach is generally appropriate, with a slight adjustment to risk management following major earnings releases.