Options playbook: These companies could issue profit warnings and cause a big stock move

Published Sun, Mar 27 20228:57 AM EDT

Corporate earnings may be in a lull, but options traders can still prepare for company news that could cause big moves in stocks. The derivatives research team at Goldman Sachs, led by Vishal Vivek, said in a note to clients on Wednesday that investors should be prepared next month for some companies to unexpectedly announce earnings early. Options prices have gone up due to market volatility in recent months, but these derivatives may be relatively cheap, according to Goldman. "While macro concerns have driven up realized volatility for most of the past few weeks, we recommend investors rotate to focusing on upcoming micro catalysts — potential preannouncements in April followed by earnings season. We believe option prices are low in the context of these catalysts," the note said. Roughly 12% of preannouncements occur in April, according to Goldman, making it the second-highest month of the year for those events. Companies may opt to report earnings, or related financial information, ahead of schedule if results are likely to differ from previous forecasts or market expectations. While often not as detailed as a full quarterly report, the news can move the company's stock. Since many of the companies that preannounce will do so within a month or so of scheduled quarterly reports, investors with longer-dated call or put options can still capture the earnings action even if the early announcement never comes. "For investors with a fundamental basis for elevated preannouncement potential, options provide an attractive way to express this view by positioning for the preannouncement and earnings volatility. If the company does provide an update ahead of results, they capture two events for the price of one. But, if the update does not occur, often they just face losing just the time decay of the options — which could be partially offset if implied volatility rises ahead of earnings," the Goldman note said. The investment firm put together a list of companies expected to report in late April or early May who have made multiple preannouncements in the past decade. The list includes some stalwarts of the stock market, including Delta Air Lines . The travel stock has already seen major volatility this year. Shares of Delta dropped more than 30% between mid-February and March 7, but they have since recaptured some of that loss. Two names on the list from more defensive sectors are health insurance stock Humana and utility firm Exelon . Humana has a recent history of seeing big moves outside of traditional earnings reports. The company's stock dropped 19% on Jan. 6 after Humana released an updated forecast. There are also some consumer-centric stocks on the list in Advance Auto Parts and Best Buy . Consumer sentiment readings have fallen sharply this year, meaning that there could be increased uncertainty about companies that rely on personal spending. —CNBC's Michael Bloom contributed to this report.

Passengers wearing protective masks wait to board a Delta Air Lines Inc. flight at Hartsfield-Jackson Atlanta International Airport in Atlanta, Georgia, U.S., on Wednesday, April 7, 2021.

Elijah Nouvelage | Bloomberg | Getty Images

Corporate earnings may be in a lull, but options traders can still prepare for company news that could cause big moves in stocks.

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