Options market sending stock a signal?
- FROG lower Thursday after 8.6% Wednesday rally
- Stock up roughly 13% from August lows
- Options volatility up significantly from last week
Something interesting happened yesterday in JFrog (FROG), but it wasn’t necessarily evident in the software stock’s price chart—although there was plenty going on there, too. Around noon ET, shares were down more than 2%, although that represented a giveback of less than a third of Wednesday’s 8.6% rally:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The stock has been quite active over the past few months, thanks in large part to volatility-inducing earnings moves (“E”). The stock jumped to its highest level since June 2021 after releasing its numbers in February, but the downturn that followed was exacerbated by big sell-offs after the May and August announcements. After last month’s earnings, FROG’s historical volatility hit its highest level on record, and shares fell as much as 48% below their February high.
As of Wednesday, the stock was up more than 12% since August 8, but it was still a long way from getting back to where it was on August 7. But with the company not scheduled to release earnings again until early November, what may have interested traders was FROG’s appearance on the LiveAction scan for large one-week increases in options implied volatility (IV):
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
As the price chart shows, IV tends to be elevated before earnings (because of uncertainty) and decline after (because that uncertainty has been removed). Yesterday, FROG’s IV jumped to its highest level in nearly a month, to where it was right around the time of its last earnings announcement.
The fact that it did so could indicate the options market is expecting more near-term volatility in the stock, even though the company is nearly two months away from its next earnings release.
Yesterday, though, the company announced an investor and analyst event on Tuesday, September 10. Also, call volume was more than four times average on Wednesday, and roughly five times average on Thursday, including open interest of 7,300 contracts in the September $30 calls.
Today’s numbers include (all times ET): Employment Report (8:30 a.m.).
Today’s earnings include: ABM (ABM), Brady (BRC).
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