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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
AAP - Advance Auto Parts Inc Today -
Before Open
6% 13.1% 1.98
KSS - Kohls Corp Today -
Before Open
5% -0.9% 0.49
TJX - TJX Companies Inc Today -
Before Open
3% 9.6% 1.02
URBN - Urban Outfitters Inc Today -
After Close
7% 14.4% 0.30
HPE - Hewlett Packard Enterprise Co Today -
After Close
6% 6.7% 0.31
RL - Ralph Lauren Corp Tomorrow -
Before Open
6% 2.4% 0.85
LOW - Lowe's Companies Inc Tomorrow -
Before Open
3% -8.8% 1.22
TGT - Target Corp Tomorrow -
Before Open
3% 2.3% 1.38
NTAP - NetApp Inc Tomorrow -
After Close
6% 12.9% 0.87

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 (%)
DE - Deere & Co Fri 18 May Before Open (4 days ago) -5.71% 5.75% 7.8%
CPB - Campbell Soup Co Fri 18 May Before Open (4 days ago) 16.67% -12.37% -14.4%
AZN - AstraZeneca PLC Fri 18 May Before Open (4 days ago) 71.43% -0.3% 1%
KEM - KEMET Corp Thu 17 May Before Open (5 days ago) 2.56% -11.95% -14.1%
WMT - Wal-Mart Stores Inc Thu 17 May Before Open (5 days ago) 1.79% -1.9% -1.9%
JWN - Nordstrom Inc Thu 17 May After Close (5 days ago) 21.43% -10.9% -10%
AMAT - Applied Materials Inc Thu 17 May After Close (5 days ago) 7.96% -8.25% -7.3%
M - Macy's Inc Wed 16 May Before Open (6 days ago) 33.33% 10.83% 15.6%
CSCO - Cisco Systems Inc Wed 16 May After Close (6 days ago) 1.69% -3.76% -3.1%

Earnings News

Spiking AutoZone shares roll completely over and tank on cost concerns raised on earnings call

AutoZone shares drop after worries of rising costs for the company were raised during its quarterly earnings call.

CNBC  Tue, 22 May 2018 17:23 GMT

Bargain-hungry customers help TJX beat sales estimates

Deep discounts helped bring more bargain hunters into its T.J. Maxx and Marshalls apparel stores.

CNBC  Tue, 22 May 2018 14:12 GMT

Kohl's shares give up gains as promotions boosted sales, but may steal from second half

Kohl's has been experimenting with partnerships to help drive traffic to its stores.

CNBC  Tue, 22 May 2018 11:10 GMT

Toll Brothers' profit misses estimates due to higher costs

U.S. luxury home builder Toll Brothers' second-quarter profit missed Wall Street estimates on Tuesday.

CNBC  Tue, 22 May 2018 10:15 GMT

When earnings look this great, it's actually a really bad time to invest in stocks

Earnings growth of more than 20 percent has been the worst time for stock market performance.

CNBC  Sat, 19 May 2018 15:25 GMT

JC Penney shares tank on sales decline, profit outlook slashed

The department store chain blames the declines on a cooler start to the spring season.

CNBC  Thu, 17 May 2018 12:03 GMT

Walmart beats on earnings and revenues as US e-commerce push pays off

After a disappointing e-commerce performance last quarter, Walmart says U.S. online sales grew 33 percent.

CNBC  Thu, 17 May 2018 10:38 GMT

Cisco drops despite earnings beat

Cisco beat earnings and revenue estimates for its fiscal fourth quarter but saw its stock fall anyway after hours.

CNBC  Wed, 16 May 2018 20:14 GMT

Macy's shares jump 10 percent after the retailer raises full-year outlook, turnaround takes hold

Macy's says it had a healthier inventory position to start the year and saw a boost from international tourism.

CNBC  Wed, 16 May 2018 11:16 GMT

Home Depot shares fall on sales miss, hurt by slow start to spring

Home Depot says sales were hurt by a "slow start to the spring selling season."

CNBC  Tue, 15 May 2018 09:48 GMT

Nissan says equity structure change to Renault alliance an option being mulled

Nissan announced the company and Renault SA were considering options to ensure the existing alliance will continue.

CNBC  Mon, 14 May 2018 13:11 GMT

Apple supplier Foxconn posts a 14.5% drop in first-quarter net profit, and lagged forecasts

Taiwan's Foxconn, supplier to Apple, posted a 14.5 percent fall in first-quarter net profit.

CNBC  Mon, 14 May 2018 12:29 GMT

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