Option Smile Volatility and Implied Probabilities Analysis

This study’s sample consists of seven corporations (Black Rock, Google, Meta, JP Morgan, Walgreens, Netflix, and Pepsico) analyzed across seven quarters beginning in 2021. The data includes the implied volatility level (annualized) for the day before, the day of, and the day following the earnings report. This information was obtained from the Bloomberg Terminal dataset BVOL. The data we read from the terminal is based on Bloomberg’s algorithm for calculating the implied volatility for different strikes. The value is the same for both calls and puts, which makes comparisons and calculations more straightforward. The dataset contains a mixture of high-growth, high-risk technology corporations that saw strong market tailwinds during the previous year and steady, high-dividend-paying equities. For a more comprehensive conclusion, we analyze the implied volatility levels across three expirations to determine the influence of each expiration. The shortest maturity spans from 1 to 4 days, while the longest extends from 19 to 22 days. We got the announcement time directly from Bloomberg. The sample comprises blue-chip equities to ensure a highly liquid sample.