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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
GIS - General Mills Inc Today -
Before Open
2% -23.1% 0.81
PAYX - Paychex Inc Today -
Before Open
2% 0% 0.63
RAD - Rite Aid Corp Today -
After Close
7% -35.9% -0.01
BB - BlackBerry Limited Tomorrow -
Before Open
10% -27% -0.01
WBA - Walgreens Boots Alliance Inc Tomorrow -
Before Open
3% 0% 1.43
CCL - Carnival Corporation Tomorrow -
Before Open
3% -15.9% 0.69
CAG - Conagra Brands Inc Tomorrow -
Before Open
2% -19.6% 0.57
NKE - Nike Inc Tomorrow -
After Close
4% -17.6% 0.45
KMX - Carmax Inc Fri 21 Dec -
Before Open (2 Days)
6% -20.6% 1.01

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 (%)
RHT - Red Hat Inc Mon 17 Dec After Close (2 days ago) 11.11% 0% 0%
ORCL - Oracle Corp Mon 17 Dec After Close (2 days ago) 5.71% 0% 0%
CIEN - Ciena Corp Thu 13 Dec Before Open (6 days ago) 9.76% 8.62% 2.7%
ADBE - Adobe Systems Inc Thu 13 Dec After Close (6 days ago) -3.85% -7.29% -10.8%
COST - Costco Wholesale Corp Thu 13 Dec After Close (6 days ago) -0.62% -8.59% -10.7%
DSW - DSW Inc Tue 11 Dec Before Open (8 days ago) 32.08% 8.13% 0.4%
AEO - American Eagle Outfitters Inc Tue 11 Dec After Close (8 days ago) 2.13% 2.94% -6.5%
SIG - Signet Jewelers Ltd Thu 6 Dec Before Open (13 days ago) 1.85% -18.05% -37.1%
MIK - Michaels Companies Inc Thu 6 Dec Before Open (13 days ago) 9.09% -0.61% -14.5%

Earnings News

Olive Garden owner's shares jump as earnings top estimates and outlook is raised

Olive Garden parent Darden Restaurants reports mixed financial results before the bell.

CNBC  Tue, 18 Dec 2018 12:19 GMT

Higher sales of heavy trucks boost Navistar profit

Truck maker Navistar on Tuesday reported better-than-expected quarterly profit and revenue, as strong freight demand helped boost sales of its high-margin Class 8 heavy trucks.

CNBC  Tue, 18 Dec 2018 12:13 GMT

Toll Brothers gives disappointing guidance; CEO blames media for housing slowdown

CEO Douglas Yearley says reports about the souring house market are causing the slowdown.

CNBC  Tue, 04 Dec 2018 13:26 GMT

Dollar General cuts full-year forecast on higher costs, shares fall

Dollar General on Tuesday lowered its full-year profit and sales forecast, hit by higher costs related to hurricanes in the third-quarter and higher freight costs, sending its shares down 6 percent before the bell.

CNBC  Tue, 04 Dec 2018 12:48 GMT

Toll Brothers profit surges 62%

U.S. luxury home builder Toll Brothers said on Tuesday its quarterly profit rose 62.1 percent, as it sold more homes at higher prices.

CNBC  Tue, 04 Dec 2018 10:19 GMT

Cloud storage firm Box reports smaller-than-expected loss, shares rise

Cloud storage provider Box reported a smaller-than-expected quarterly loss as it added more customers, and forecast full-year revenue estimates above analysts' estimates.

CNBC  Thu, 29 Nov 2018 10:58 GMT

Tiffany's stock plunges as weaker Chinese tourism puts a dent in sales

Tiffany's stock nose-dives after the jeweler released disappointing third-quarter sales that were hurt by weaker spending from Chinese tourists in the U.S. and Hong Kong.

CNBC  Wed, 28 Nov 2018 13:54 GMT

Salesforce has never been stronger or in a better position than it is now, CEO says after earnings

Jim Cramer hears from Salesforce.com CEO Marc Benioff after the software giant's third-quarter earnings report.

CNBC  Tue, 27 Nov 2018 22:15 GMT

Deere profit soars despite doubts on Wall Street

A boost in construction equipment sales drove profit higher for Deere in the fourth quarter, but the results fell short of Wall Street expectations and pulled on shares before the opening bell Wednesday.

CNBC  Wed, 21 Nov 2018 14:35 GMT

Gap's comparable sales miss as its namesake brand struggles

Gap reported quarterly same-store sales below analysts' estimates on Tuesday, dragged down by another weak performance in its namesake brand.

CNBC  Wed, 21 Nov 2018 10:55 GMT

Campbell Soup tops analyst expectations ahead of contested shareholder vote

Campbell Soup reports quarterly earnings and revenue that beat analysts' expectations. The soup company is locked in a proxy fight with activist firm Third Point.

CNBC  Tue, 20 Nov 2018 12:59 GMT

Kohl's earnings top estimates but shares plunge as outlook disappoints

Kohl's reports quarterly earnings and revenue that topped analysts' expectations. While it also raised its profit forecast for the year, it was on the low end of what Wall Street had been calling for, and shares plunge.

CNBC  Tue, 20 Nov 2018 12:37 GMT

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