MA Markets are Pricing a Huge Earnings Move


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Option Markets are Predicting a ±3.4% Earnings Move

Mastercard (MA) is scheduled to release earnings tomorrow, January 26, 2023, before the market opens. The option markets are currently pricing in a ±3.4% stock move for MA after the earnings announcement. In this article, we will analyze the market's current expectation against the results from actual historical earnings moves.

How did historical predictions in MA compare to actual earnings moves?

In the chart below, the blue brackets indicate what the MA options traders expected the earnings move to be (in either direction), while the red and green bars show the actual moves that occurred over the last 12 periods. On average, traders priced the estimated over/under earnings move at 3.6% over the last 12 quarters. In comparison, the actual average move was 2.6%. That translates to a 1.0% differential between the expected moves and the actual moves.

Expected Earnings Move vs. Actual

Since 2020, Options have Overestimated Earnings Moves 75% of the Time

I Implied Move
Actual Move Up
Actual Move Down

How Does a ±3.4% Move Measure Up to Historical Stock Moves?

We look at the current MA expected earnings move of ±3.4% and compare it to actual historical stock moves from the 3 different perspectives below:

  1. 1-day earnings moves using close-to-close prices
  2. The opening gap move immediately following earnings, from the prior close to the open price
  3. The largest intraday move, from the previous day's close to either the high price of the day or the low price of the day

The 3 charts below show the current market prediction of a ±3.4% earnings move highlighted in blue, while the green bars show historical earnings moves that were up and the red bars show historical earnings moves that were down.

Actual 1-Day Moves Post-Earnings

Historically, the average earnings move was ±2.5% on the day after the release. There have been 7 instances in the last 9 years where the stock moved more than ±3.4% on the day after earnings. The highest single-day move was 9.4% on October 30, 2014. Since 2014, 81% of the actual earnings moves were less than 3.4% (in either direction).

19% of Historical 1-Day Earnings Moves were above 3.4%

Next Implied Move
Actual Move Up
Actual Move Down

Earnings Gaps

MA has averaged an opening gap of 2.0% after earnings. The largest opening gap over the last 9 years was 5.4%, which would be 2.0% higher than the current implied earnings move. 89% of the historical gap moves were smaller than ±3.4%, up or down.

11% of Historical Earnings Opening Gaps were above ±3.4%

Next Implied Move
Actual Gap Up
Actual Gap Down

Historical Probability of Touch

In 8 of MA's last 16 earnings dates, the stock price moved beyond ±3.4% at some point during the day -- including moves to the intraday high or intraday low. The most significant move that occurred during this time was on October 28, 2020, when the stock dropped 9.0% to the low of the day.

50% Historical Probability of Touch for ±3.4% Move

Next Implied Move
Intraday Max Move Up
Intraday Max Move Down

Conclusion

Based on history, there is a decent chance (50%) that, at some point during the day, the stock will make a move beyond ±3.4% from the previous close. However, a ±3.4% move close-to-close is more rare, occurring in only 25% of instances. And it is even less likely that the stock makes an opening gap move that exceeds ±3.4%, happening in only 19% of cases.


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