If earnings season is creating a bit of whiplash for you this quarter, you’re not alone. Third-quarter reports have already sparked some major stock moves just a few weeks into the period. Last Wednesday, United Airlines surged more than 12% after a strong third-quarter report and forecast. On Tuesday of last week, chipmaker ASML fell 16% after releasing disappointing results , dragging other semiconductor stocks down with it. The latest example is Enphase Energy , which dropped 13% on Wednesday after missing expectations on the top and bottom lines in the third quarter and delivering soft revenue guidance. ENPH 5D mountain Shares of Enphase Energy were down sharply Wednesday. The trend of earnings reports preceding big moves in stocks appears to be carrying over from last quarter. John Marshall of Goldman Sachs’ derivatives research team said in a note to clients that the second-quarter reporting season was abnormally dramatic. “Last quarter, 12% of S & P 500 stocks moved more than +/-10% on their earnings day. This is the largest percentage over the past 15 years and double the typical percentage of 6%, making it crucial for portfolio managers and risk managers to focus on earnings-day moves,” the note said. A volatile earnings season can make for a target-rich environment for stock pickers with strong convictions about which way a company is headed. But for more cautious investors, Marshall’s team suggested taking a look at buying straddles on stocks where implied volatility is low. A straddle is a derivatives strategy that combines call and put options to make a bet on higher volatility, regardless of the direction a stock moves. “When applied strategically across a portfolio, we find this overlay can provide a hedge or amplify upside exposure should the market make a correlated up or down move,” the note said.
