You can use options to predict stock price moves:

• Select the underlying with earnings announcements

• Construct a straddle with near-term expiration

• Compute the implied move of the underlying

Here are the details:

The price of a straddle can be used to measure the market's expected stock price move after earnings.

Near expiration, straddles are almost entirely time value.

This time value can be thought of as the probability of the position expiring in the money.

Here’s how it works:

We’ll use OpenBB for the options data. To use the Nasdaq provider, set a dummy API key.

Next, use OpenBB to grab data on earnings announcements.

This code downloads earnings announcement data for companies that are reporting in the next 14 days.

Inspect the resulting DataFrame and pick a stock that is announcing earnings on an upcoming Thursday. We’ll use COST for this example and download the last traded price.

Next, we’ll grab options chains for COST.

This code selects all the options that expire on 8 March, which is the Friday after earnings are announced. That means we can reliably use these options to predict the price move.

To construct the straddle, we’ll extract calls and puts with a strike that is at the money for the call options.

Finally, we’ll compute the implied price change of the stock based on the straddle price.

The implied move is calculated by adjusting the stock price, annualizing it based on the days to expiration, and converting it into a percentage.

The result is an implied move of 1.74% in COST after earnings.

As a next step, run the analysis for several stocks with the same options expiration and earnings date. How accurate is the options market in predicting the future move?