When looking to place an earnings trade, it is important to be aware of the large moves that often accompany these announcements. Knowing this, is the expected move calculation still accurate for a binary event?
Today, Tom Sosnoff and Tony Battista look at what the actual move of an earnings announcement is compared to what was expected. The guys find out that 83.7% of the time, the actual move was less than expected. If Implied Volatility accurately predicted the expected move of an underlying around earnings, the actual move would only been inside the expected 68% of the time. These results continue to show that even around earnings, IV is overstated and is one of the reason why we look to sell premium!