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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
BAC - Bank of America Corp Today -
Before Open
2% -3.3% 0.62
INFY - Infosys Limited Tomorrow -
Before Open
5% 46.8% 0.13
DPZ - Domino's Pizza Inc Tomorrow -
Before Open
5% -35.9% 1.73
UNH - UnitedHealth Group Inc Tomorrow -
Before Open
2% -18.5% 3.30
MS - Morgan Stanley Tomorrow -
Before Open
2% 2.6% 1.00
OMC - Omnicom Group Inc Tomorrow -
Before Open
2% -13.5% 1.21
JNJ - Johnson & Johnson Tomorrow -
Before Open
1% 12.3% 2.03
PGR - Progressive Corp Tomorrow -
Before Open
1% -16.7% 1.14
NFLX - Netflix Inc Tomorrow -
After Close
12% -50.5% 0.68

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 (%)
C - Citigroup Inc Fri 12 Oct Before Open (3 days ago) 4.82% 2.14% 7.9%
JPM - JPMorgan Chase & Co Fri 12 Oct Before Open (3 days ago) 4.46% -1.09% -6.2%
WFC - Wells Fargo & Co Fri 12 Oct Before Open (3 days ago) -3.42% 1.3% 8.6%
WBA - Walgreens Boots Alliance Inc Thu 11 Oct Before Open (4 days ago) 2.78% -1.95% -8.4%
DAL - Delta Air Lines Inc Thu 11 Oct Before Open (4 days ago) 3.45% 3.56% 1.2%
FAST - Fastenal Co Wed 10 Oct Before Open (5 days ago) 2.99% -7.14% -15.9%
COST - Costco Wholesale Corp Thu 4 Oct After Close (11 days ago) 0.85% -5.55% 0%
AYI - Acuity Brands Inc Wed 3 Oct Before Open (12 days ago) -1.56% -13.17% 6.4%
LEN - Lennar Corp Wed 3 Oct Before Open (12 days ago) 17.65% -1.13% 19.1%

Earnings News

PNC Financial hit by cost rise as profit jumps

U.S. regional bank PNC Financial Services beat analysts' estimates for quarterly profit on Friday.

CNBC  Fri, 12 Oct 2018 12:07 GMT

Citigroup shares rise more than 2% after company reports better-than-expected earnings

Citigroup's bottom line received a third-quarter boost from lower corporate taxes.

CNBC  Fri, 12 Oct 2018 11:32 GMT

Wells Fargo's third quarter revenue tops expectations amid bank revamp

The San Francisco bank is planning big staff cuts as part of an ongoing turnaround effort.

CNBC  Fri, 12 Oct 2018 11:31 GMT

JP Morgan reports better-than-expected earnings and revenue, but bond trading revenue is weak

J.P. Morgan's stronger retail results offset lower bond-trading revenue.

CNBC  Fri, 12 Oct 2018 10:35 GMT

Investor Barry Sternlicht worries about a recession signal and an economy not as strong as it appears

The Starwood Capital CEO says negative factors are contributing to his unease about the state of U.S. economy.

CNBC  Thu, 11 Oct 2018 12:49 GMT

US jobless claims rise unexpectedly as filings for the Carolinas were affected by Hurricane Florence

First-time claims for state unemployment claims were expected to total 206,000, down 1,000 from the previous week's claims.

CNBC  Thu, 11 Oct 2018 12:31 GMT

US inflation slows in September on rental costs, energy

U.S. Consumer Price Index was expected to rise 0.2 percent in September, in line with the previous month's increase.

CNBC  Thu, 11 Oct 2018 12:30 GMT

Strong travel demand lifts Delta profit and revenue, despite higher fuel costs

Strong travel demand lifts Delta profits, revenues, despite higher fuel costs. The second-largest U.S. airline's net income rose 13 percent in the three months ended Sept. 30 from a year earlier to $1.31 billion.

CNBC  Thu, 11 Oct 2018 11:06 GMT

Walgreens Boots Alliance shares fall as sales growth disappoints

Walgreens Boots Alliance reports quarterly earnings that topped analysts' expectations, but revenue falls slightly short.

CNBC  Thu, 11 Oct 2018 11:05 GMT

Rising yields could be a big problem for booming corporate profits

When third-quarter earnings season starts in earnest later this week, companies by and large will report that the present is all bright and rosy. The future? That could be another story.

CNBC  Mon, 08 Oct 2018 15:37 GMT

PepsiCo tops estimates and returns beverage business to growth on Nooyi's last day as CEO

The 16 percent surge in profits was a victory for Indra Nooyi on her last day as CEO, after years of pressure to sell or spin the company's beverage business as its growth has lagged behind that of its Frito Lay, Tostitos and other packaged snacks.

CNBC  Tue, 02 Oct 2018 10:01 GMT

BlackBerry profit tops estimates on lower costs

BlackBerry reported quarterly profit above Wall Street's estimates on Friday, as lower expenses helped offset a drop in its enterprise software and services revenue.

CNBC  Fri, 28 Sep 2018 12:28 GMT

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