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Ride-the-Wave Strategy – Best for Stock Traders

Ride-the-Wave targets multi-day price momentum following a company’s earnings announcement (EA). With this strategy:

  1. Buy a stock one day post-EA if a stock reacts positively post-earnings:
    1. Near the close of trading the EA-day for a pre-market-EA
    2. Near the close of the following day for a post-market-EA
  2. Sell-to-close after 7-10 days, or possibly earlier if a desired price target is reached

Similarly,

  1. short a stock one day post-EA if a stock reacts negatively post-earnings:
    1. near the close of trading the EA-day for a premarket-EA
    2. near the close of the following day for a post-market-EA
  2. then buy-to-close after 7-10 days, or possibly earlier if a desired price target is reached

Important: Ride-the-Wave is predicated on significant price momentum triggered by an EA. The 7-10 day scenario is the maximum trade hold-time. If you see post EA-momentum is halted or reversed by a significant opposite move, re-evaluate your presence in the trade.

This popular StockEarnings screen below will give you a list of stocks that historically exhibit significant price momentum following an EA for the next seven days:

  1. Stocks exhibiting positive post-EA price moves are buy-candidates
  2. Stocks exhibiting negative post-EA price moves are sell/short-candidates

The screen includes those stocks whose Earnings just came out in last two days.

Screen criteria:

  1. Earnings Date Start Date : Current Date + -1 Day
  2. Earnings Date End Date : Current Date + -2 Days
  3. Predicted Move (Next Day) Max : 7%
  4. Predicted Move (On 7th Day) Min : 7%

Strategy Guideline:

  1. Buy the stock if stock has reacted positively. Short the stock if stock has reacted negatively (see above).
  2. Close the position in 7-10 days, or possibly earlier based on price move.

Volatility Crush Strategy - Best for Options Traders

The Volatility Crush strategy is used with stocks that typically experience relatively low-to-moderate price moves (≤4%) following their Earnings Announcements (EA). The basic trade idea is to sell put or call options right before the EA, collecting a credit when options premium is very high due to elevated implied volatility (IV). You then close the position right after the EA by buying the option back much cheaper due to the significant drop in IV that occurs after the mystery of the EA disappears. In assessing this trade, you need to do your homework to ensure you collect sufficient premium to make the trade worthwhile.

This trade is practical due to the low-to-moderate price-move after the EA, which generally won’t significantly affect the options price, unlike an “action” stock, which experience great price moves post-EA. With these symbols, if you’re on the right side of the price move, that’s a great thing. But if you’re on the wrong side of the move, not so great. Consequently, by minimizing the effect of the post-EA price move, you have a much better chance to profit from the reduction in IV without it being ruined by a violent price move.

For this trade, open the position either (1) the night before the EA when the company announces earnings or (2) during the EA day when it announces post-market, generally capturing IV at or close to its peak.

For this trade, open the position either (1) the night before the EA when the company announces earnings or (2) during the EA day when it announces post-market, generally capturing IV at or close to its peak.

This popular stockearnings screen will give you a list of stocks which do not react more than 4% fpost-EA. It includes only those stocks whose earnings are releasing next day.

Screen criteria:

  1. Earnings Date Start Date : Current Date + 1
  2. Earnings Date End Date : Current Date + 1
  3. Predicted Move (Next Day) Max : 4%
  4. Options Type: Weekly

Strategy Guideline:

  1. Options Strategy: Sell Call and Put
  2. Options Strike Price: Current Stock Price – (% Predicated Move x 2)
  3. Expiration Date: It should generally be the closest expiry immediately after the EA.
  4. Buy Insurance: Buying back Call and Put at Strike price which 10% lower than Sell Strike Price is optional but recommended.

Watch Video for More Detail

Volatility Rush Strategy - Best for Options Traders

The Volatility Rush takes advantage of increasing options premiums into earnings announcements (EA) caused by an anticipated rise in Implied Volatility (IV). With this strategy, Buy a Call and Put at-the-money (a long straddle) 2-3 weeks before the EA when IV is lower. Sell the position either (1) the night before the EA when the company announces earnings pre-market, or (2) during the EA day when it announces post-market, generally capturing IV at or close to its peak.

This popular screen will give you a list of stocks whose Options premiums tend to rise into Earnings. It includes only those stocks whose Earnings are at least two weeks away from today.

Screen criteria:

  1. Earnings Date Start Date : Current Date + 15 Days
  2. Earnings Date End Date : Current Date + 30 Days
  3. Predicted Move (Next Day) Min : 5%
  4. Options Type: Weekly or Monthly if that lines up with the two to three-week lead-time for entering the trade

Strategy Guideline:

  1. Buy a Straddle at or close to the money two to three weeks pre-EA.
  2. Sell the position either the night before the EA when the company announces earnings pre-market, or during the EA day when it announces post-market.
  3. Expiration date should generally be the closest expiry immediately after the EA.
  4. Straddle price should not be more 60% of predicted move.

Since Last Earnings

Change in share price since last Earnings release.

Why is it Important?

When share has gained more than 10% since it's last Earning release, it tends to over react to minor bad news and give up some gains if not all. So, it contains more downside volatility than upside When share has dropped more than 10% since it's last Earning release, it tends to over react to minor good news and recover some drops if not all. So, it contains more upside volatility than downside.

EPS Surprise (%)

Occurs when a company's reported quarterly or annual profits are above or below analysts' expectations. Here is the formula to derive % EPS Surprice:

Actual EPS - Estimated EPS
------------------------------------- x 100
Estimated EPS

Why is it Important?

Earnings surprises can have a huge impact on a company's stock price. Several studies suggest that positive earnings surprises not only lead to an immediate hike in a stock's price, but also to a gradual increase over time. Hence, it's not surprising that some companies are known for routinely beating earning projections. A negative earnings surprise will usually result in a decline in share price.

Next Day Price Change (%)

Next Regular trading session Closing price following Earnings result.

For After Market Close Earnings, It is a next trading day closing price. For Before Market Open Earnings, It is the same trading day closing price.

Why is it Important?

Next Day price change is a reaction of Earnings result.

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Upcoming Notable Earnings

Symbol/Company Earnings Date Predicted Move Since Last Earnings Est EPS
CCL - Carnival Corp Mon 25 Jun -
Before Open (2 Days)
2% -6.9% 0.60
LEN - Lennar Corp Tue 26 Jun -
Before Open (3 Days)
3% -22.5% 0.45
INFO - IHS Markit Ltd Tue 26 Jun -
Before Open (3 Days)
2% 5.7% 0.46
GIS - General Mills Inc Wed 27 Jun -
Before Open (4 Days)
2% -9.9% 0.75
PAYX - Paychex Inc Wed 27 Jun -
Before Open (4 Days)
2% 12.9% 0.61
RAD - Rite Aid Corp Wed 27 Jun -
After Close (4 Days)
7% 0% 0.00
BBBY - Bed Bath & Beyond Inc Wed 27 Jun -
After Close (4 Days)
6% 0% 0.32
WBA - Walgreens Boots Alliance Inc Thu 28 Jun -
Before Open (5 Days)
3% 2.8% 1.47
CAG - Conagra Brands Inc Thu 28 Jun -
Before Open (5 Days)
2% 8.3% 0.43

Stocks Screener for Earnings

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Earnings Date

Market Cap

Average Daily Volume

Predicted Move After Earnings

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Post Notable Earnings Analysis

Symbol/Company Earnings Date EPS Surprise (%) Next Day
Price Change (%)
Since Last
Earnings (%)
KR - Kroger Co Thu 21 Jun Before Open (2 days ago) 15.87% 9.74% 9.7%
RHT - Red Hat Inc Thu 21 Jun After Close (2 days ago) 8.16% 0% 0%
MU - Micron Technology Inc Wed 20 Jun After Close (3 days ago) 0.65% 0.83% 0.8%
ORCL - Oracle Corp Tue 19 Jun After Close (4 days ago) 4.6% -7.46% -6.9%
MIK - Michaels Companies Inc Thu 14 Jun Before Open (9 days ago) 2.63% -14% -12.6%
FNSR - Finisar Corp Thu 14 Jun After Close (9 days ago) 0% 1.69% 0.1%
JBL - Jabil Circuit Inc Thu 14 Jun After Close (9 days ago) 5.56% -6.51% -8.5%
ADBE - Adobe Systems Inc Thu 14 Jun After Close (9 days ago) 10.4% -2.43% -3.6%
HRB - H & R Block Inc Tue 12 Jun After Close (11 days ago) 3.23% -17.94% -20.7%

Earnings News

CarMax shares surge to record high, have their best day in 4 years

The stock was up more than 12 percent, posting its best day since June 24, 2014, when it gained 16.5 percent.

CNBC  Fri, 22 Jun 2018 16:03 GMT

BlackBerry quarterly results beat on software strength

BlackBerry reported a quarterly loss, compared with a year-ago profit when the Canadian software maker received a one-time arbitration payment of $940 million from chipmaker Qualcomm.

CNBC  Fri, 22 Jun 2018 11:14 GMT

Red Hat slides 12% after giving low guidance

Red Hat beat estimates for its fiscal first quarter, but looking ahead, estimates came in low.

CNBC  Thu, 21 Jun 2018 20:27 GMT

Kroger shares have their best day in 9 years on strong earnings

The supermarket operator saw strong earnings after shifting its focus to online grocery and delivery services.

CNBC  Thu, 21 Jun 2018 15:58 GMT

Goldman Sachs: Weak stock market returns are ahead even with booming earnings

A continued surge in corporate earnings will have only limited benefit for stock prices, according to Goldman Sachs.

CNBC  Thu, 21 Jun 2018 15:37 GMT

Olive Garden owner's shares jump after earnings beat, dividend hike

Darden Restaurants posted better-than-expected fiscal fourth-quarter earnings and raised its quarterly dividend.

CNBC  Thu, 21 Jun 2018 13:48 GMT

Red-hot chip stock Micron rises as Wall Street gushes over cloud computing memory demand

Analysts are optimistic over Micron's end markets and memory chip pricing for the rest of the year.

CNBC  Thu, 21 Jun 2018 13:46 GMT

Wall Street is watching CarMax earnings on Friday for two major reasons

Here's why Wall Street will be watching CarMax earnings on Friday for two themes.

CNBC  Thu, 21 Jun 2018 13:00 GMT

Micron's quarterly results, forecasts beat on higher chip demand

Micron Technology's third-quarter profit and current-quarter forecasts beat Street's expectations.

CNBC  Thu, 21 Jun 2018 12:20 GMT

Kroger, on a 'wild ride' in the last year, reports earnings this week. Here's how to play it

One derivatives expert says the options market is implying a relatively tame move on Kroger's earnings report.

CNBC  Wed, 20 Jun 2018 11:00 GMT

Oracle stock drops sharply on guidance

Oracle stock dropped after the company reported guidance even as the company beat fiscal fourth quarter estimates.

CNBC  Tue, 19 Jun 2018 20:29 GMT

Micron is doing something unusual ahead of next week's earnings

Susquehanna's Stacey Gilbert says the options market is doing something unusual ahead of Micron's earnings report.

CNBC  Fri, 15 Jun 2018 10:54 GMT

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