On Semiconductor Options Market Pricing in 8.4% Post-Earnings Stock Move

Options market data indicates that traders are pricing in a potential 8.4% move, in either direction, for On Semiconductor Corp. (NASDAQ:ON) shares following the company's upcoming earnings release. The semiconductor firm is scheduled to report its financial results on November 2 after the market closes.

Gauging Volatility Expectations

The implied move is derived from the price of options contracts and reflects the market's consensus on the stock's potential volatility after the earnings announcement. This figure, based on data compiled by Bloomberg, suggests traders are preparing for a significant price swing but does not predict the direction of the movement.

Investors and traders use this metric to gauge risk and to structure strategies, such as straddles or strangles, which are designed to profit from a large move regardless of its direction.

Historical Performance vs. Expectations

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An analysis of the past eight earnings reports shows a mixed record for the options market's predictive accuracy regarding the magnitude of the stock's reaction. The data reveals that On Semiconductor's actual post-earnings stock movement has exceeded the options-implied move in three of the past eight quarters.

Here is a summary of the company's recent earnings reactions:

• August 2023: Implied 10.3% vs. Actual -6.9%
• May 2023: Implied 9.4% vs. Actual +4.3%
• February 2023: Implied 8.6% vs. Actual +12.5%
• November 2022: Implied 8.9% vs. Actual -0.5%
• August 2022: Implied 9.7% vs. Actual -15.7%
• May 2022: Implied 8.8% vs. Actual -3.1%
• February 2022: Implied 8.5% vs. Actual -10.1%
• October 2021: Implied 8.1% vs. Actual +5.5%

The historical performance suggests that while the market often overestimates the stock's reaction, there have been several instances of significant surprises that led to outsized moves. Investors will be closely watching whether the upcoming report or the company's forward-looking guidance will be a catalyst for another such event.