Exploring the Impact of Earnings Surprises on Options Bid-Ask Spread in the Energy Sector: Analysis of The US Energy Sector

Abstract

Given the constant stream of earnings figures reported on a quarterly basis, it’s important to understand the effect that this event would have. Majority of the time, the figures released are anticipated and produce little change. However, when a figure surfaces that is not expected, an Earning Surprise occurs. This thesis examines the effect that these Earning Surprises have on options bid-ask spreads, specifically within the US energy, through a comparison of how a normal spread value deviates from the actual spread value during these surprises. This thesis observes general deviations in spreads at times of earning surprises, with increases when negative sentiment is produced, and decreases when positive sentiment is produced.