10 Minute Read

Tackle Today: Insights from the Market Maker Move

May 5, 2021

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Impressions from freshly listed options

Traders,

Earnings season is winding down with many of the heavy hitters already having stepped up to the plate. While few scored massive gains in their share prices, even fewer suffered outsized losses. The stock market remains steady near record highs suggesting that the numbers were good enough to keep buyers’ conviction red-hot.

If there’s one theme that persisted through earnings season, it’s that volatility was subdued. The options market reveals ahead of time what the expected post-earnings gap size will be. The so-called Market Maker Move or MMM can be found in the Trade tab in ThinkorSwim. Rather than flying blind into these quarterly events, you can use MMM to build your own expectations for how much movement traders are pricing in.

Based on options pricing theory, the MMM represents a one-standard deviation move. In other words, there’s a roughly 68.2% chance that the stock will move less than the expected move. This also implies there’s a 31.8% chance the stock will move more than the MMM.

I don’t have the data in front of me, but if we were to analyze every stock’s earnings response this quarter, I suspect the percentage of gaps that fell within the MMM was well above 68.2%.

That’s what I mean when I say the volatility throughout earnings season was subdued. The implication, then, is that options sellers did very well. Anyone who shorted premium into the events via strategies like naked puts, credit spreads, and condors likely departed with fatter pockets than when they first arrived.

#TeamTackle


Chart of the Day

Activision (ATVI) Market-Maker-Move

The day before earnings, Activision showed a Market Maker Move of +/- $4.14. Given its share price of $91.15, this translates into a move of 4.5%. By the time this message is published the stock will have reported earnings. Analyze the gap based on the open on May 5th. Did it gap more than 4.5%? If it follows the path of most companies this earnings season, it probably didn’t.


Video of the day

The Queen’s Court

In this week’s edition of the Queens Court, the coaches bring separate trading picks for Coach Emily to review. Will she accept the trade ideas or will she lop off the coaches heads?

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Trading Lounge at Night 8:30 PM EST

Join Greg Holmes tonight as he hosts the second of our Trading Lounges today.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Trade Masters 7:00 pm EST

Join us for a special webinar with the coaches where they’ll analyze some trade setups.


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