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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.

News

KB Home (NYSE:KBH) Fails to Execute During Critical Quarter

Posted on Jul 01, 2020 by StockEarnings Staff

KB Home (NYSE:KBH) reported strong gross margins. Unfortunately, nothing else reported could be called “strong”. It was a comprehensive disappointment. Orders plummeted. Cancellations took off. Both dynamics largely reflected “the Company's proactive efforts to assure a backlog of qualified home buyers amid the unprecedented nationwide economic and employment disruptions resulting from the pandemic". In other words, people were less inclined to make a major purchase, and of those to whom that statement doesn’t apply, the company was less likely to work with them without more assurances of qualified credit standing. However, the company also failed to execute relative to peers according to our analysis.

more

Nike Inc (NYSE:NKE) Dives on Rough Data, But its Nike!

Posted on Jun 27, 2020 by Anne Perry

Nike Inc (NYSE:NKE) ) was a shot across the bow for anyone who thought everything was destined to work out a bit better than expected. But it still has the obvious “out” – hey, there’s a pandemic! The company missed estimates by a wide margin as most of its stores were closed down during the quarter. So, anything goes, and this can’t really be all that surprising. The one thing you can be sure of right now is this: no expectations come with strong conviction. No one knows, and everyone knows that. In any case, it will take a couple of quarters to tailor inventory levels to the context, but results also showed the underlying strength in 80% ecommerce growth driving a 30% mix factor, which will now target a 50% mix while stores are growing double digits in North America since mid-May.

more

Oracle Corporation (NYSE:ORCL) Hides Under Coronavirus Cover as Familiar Themes Resurface

Posted on Jun 24, 2020 by Anne Perry

Oracle Corporation(NYSE:ORCL)beat the number once again. It always does. However, an astute observer will note that the company failed to truly reignite the flame of top line growth once again. Sure, the company hammered EPS targets (which it has only failed to do once in the past 15 quarters), sales dropped over 6%, falling short of a lowered analyst bar of $10.72 billion. This dive in sales was the worst ORCL has seen since midway through 2015. However, as you may have guessed, the author of this chapter of the Oracle story was COVID-19.

more

Chewy Inc (NYSE:CHWY) Offers Investors a Conundrum

Posted on Jun 17, 2020 by Anne Perry

Chewy Inc (NYSE:CHWY) traded to the downside despite hitting the wires earlier this week with a nice beat-the-number result, and guidance pop that didn't seem to be embedded in the expectations. One might chalk it up a bit to the “reopening” theme, as pure-play e-commerce opportunities start to give back a taste of their extraordinary gains during the pandemic lockdown. In this case, we have the premier pet food e-commerce idea in the market. That said, the stock priced in quite a shift in behavior, reopening may start to shift that behavior, and the topline performance may represent an exaggerated sense of demand due to forward-pull demand through hoarding.

more

Elastic NV (NYSE:ESTC) Kneejerks Lower, But Deserves Closer Inspection

Posted on Jun 11, 2020 by Anne Perry

Elastic NV (NYSE:ESTC) has been one of the strongest names in the market since the March broad index “crash” lows, with shares of the data solutions name advancing as much as 125% in the past 3 months. Q1 data hit the wires on Thursday, and the stock took a small hit, dropping about 7% in immediate reaction following a strong quarter with mixed in-line guidance and what one might see as a FY21 sandbag job, lowering the bard to 25% top-line growth (from 57% in FY20)

more

Slack Technologies Inc (NYSE:WORK) Suffers from Zoom’s Success

Posted on Jun 11, 2020 by Anne Perry

Slack Technologies Inc (NYSE:WORK) may, in a way, have suffered from what we saw out of Zoom (ZM) a few days earlier, as expectations were ratcheted up in preparation for another pandemic technology blow-out. But the report failed to measure up, and shares of WORK cratered.

more

Pinterest Inc (NYSE:PINS) Stuck Out, and Not in a Good Way

Posted on Jun 07, 2020 by Anne Perry

Pinterest Inc (NYSE:PINS) appears to have blown it, according to analyst reactions to its Q1 data. The company missed on the bottom line and came in around expectations on the top line earlier this month. We wanted to revisit the report now because the stock represents an interesting internet business example that failed to excite folks looking for somewhere non-covid-19-affected to channel investment dollars… The company decelerated more meaningfully than peers to down 8% y/y in April. more

LYFT Inc (NASDAQ:LYFT) Sees Short-Lived Pop on Positive Earnings Surprise

Posted on Jun 07, 2020 by Anne Perry

LYFT Inc (NASDAQ:LYFT) hit Q1 earnings earlier this month with expectations in check. The COVID-19 pandemic has decimated the ride-sharing industry, understandably. Being bottled up in a chamber with a stranger who may have had exposure to a range of unknown other individuals in close quarters in a small enclosed space is not something that sells during a pandemic crisis. That goes for both riders and drivers. So, the market was understandably expecting the worst-case scenario here. However, contrary to expectations, the country's second largest ride-sharing company blew out Q1 2020 forecasts, delivering surprisingly impressive results. But shares have failed to hold onto reaction gains.

more

IBM (NYSE:IBM) is Next to Declare No Visibility into the Pandemic Future

Posted on Apr 22, 2020 by Anne Perry

IBM (NYSE:IBM) reported revenue down yr/yr and missed estimates for the sixth time in seven quarters. The company withdrew its outlook but maintained its dividend (5.4% yield), removing language about dividend growth. The company faces uncertainty with its Consulting business. In software, IBM warned of a pause among clients amid changing priorities as the crisis played out in March. On the positive side, the company is committed to more M&A. more

Citigroup Inc (NYSE:C) Sheds More Light on the Credit System

Posted on Apr 22, 2020 by Anne Perry

Citigroup Inc (NYSE:C) has done a fantastic job, along with other major banks, at providing insight into their books during a remarkably difficult period for banking. The environment is impossible from a visibility standpoint, and Q1 data isn’t the driving issue that will define asset prices. So, the earnings report from a major bank right now is just about understanding to what extent they can provide credit in a temporarily collapsing economic context. more

Intuitive Surgical, Inc. (NASDAQ:ISRG) Endures Short-term Pain for Long-term Gain

Posted on Apr 22, 2020 by Anne Perry

Intuitive Surgical, Inc. (NASDAQ:ISRG) is likely to be one of the rare positive surprises for earnings data this quarter, beating on the top and bottom lines. But it is also an example of strong execution in an increasingly difficult context. The coronavirus has hit hard here because no one wants to be anywhere near a hospital right now unless they absolutely have to be. And procedures that aren’t emergencies are going to be put off until the ICU base of the developed world isn’t overrun with COVID-19 cases. But this will eventually translate into a pent-up demand driver for the company. more

Levi Strauss & Co. (NYSE:LEVI) is Wearing Thin, But Beating the Number

Posted on Apr 08, 2020 by StockEarnings Staff

Levi Strauss & Co. (NYSE:LEVI) hit the wires on Tuesday afternoon following the closing bell with the company's Q1 report card. The company reported a clear beat, with earnings of $0.40 per share, $0.05 better than the S&P Capital IQ Consensus of $0.35 on revenues growth of 4.9% year/year to $1.51 bln (which was versus the $1.46 bln S&P Capital IQ Consensus). Note, this was a quarter that closed for the company in February, so it was largely not impacted by the COVID-19 outbreak in the US and EU, and did include 2019 Black Friday and holiday season sales. more

Lululemon Athletica Inc (NASDAQ:LULU) Has Advantages and They’re Showing Through Now

Posted on Apr 05, 2020 by StockEarnings Staff

Lululemon Athletica Inc (NASDAQ:LULU) right now is a pretty similar story to Nike (NKE) in the big picture. Growth is going to take a hit, but it represents a branding story that can actually strengthen through the fire of this contraction due to a strong online business and undeniable brand loyalty that translates into premium pricing. more

Nike Inc (NYSE:NKE) Jumps on Positive Surprise and China Healing

Posted on Mar 28, 2020 by StockEarnings Staff

Nike Inc (NYSE:NKE) ripped higher after reporting Q3 (Feb) earnings this week that were much better than some feared. Rivals Adidas (ADDYY) and Puma both recently reported sharp declines in China. While Nike saw a big drop in sales in China, it was able to navigate the downturn better than expected, which is helping the stock jump higher. Nearly 80% of stores in China have now reopened, including its first store in the Wuhan area, which was ground zero for the outbreak. Nike said on the call it's seeing the other side in terms of the crisis in China. more

Crowdstrike Holdings Inc (NASDAQ:CRWD) Appears to be 0-proof

Posted on Mar 24, 2020 by StockEarnings Staff

Crowdstrike Holdings Inc (NASDAQ:CRWD) boomed higher to close out last week with an earnings performance that may well change the narrative on this stock. It may start to be lumped in with that special group of stocks (WMT, ZM, AMZN, etc) that for one reason or another are deemed “pandemic-proof”. Web security clearly now has become essential, not discretionary. Remote collaboration during this period brings about more vulnerable endpoints that demand protection. CRWD launched a suite of new tools for working from home that are free to use as well. One big sign that boosts this overall view is the company’s willingness to give precisely stated guidance. more

Mongodb Inc (NASDAQ:MDB): a Blow-out and a Bag of Sand

Posted on Mar 19, 2020 by StockEarnings Staff

Mongodb Inc (NASDAQ:MDB) reported another strong quarter on Tuesday afternoon, which was boosted by a large deal. Growth has slowed dramatically over the last year (+49% in Q4 vs. +85% growth peak in the fourth quarter of the prior year) but the company has now lapped a headwind from mLab customers in the Atlas business (which still grew 80% to a 40% mix). But the FY 2021 story is a sandbag in the air. more

Oracle Corporation (NYSE:ORCL) Has Its Head in the Cloud

Posted on Mar 19, 2020 by StockEarnings Staff

Given all the crashing action we have been seeing, you might be surprised to learn that Oracle Corporation (NYSE:ORCL) once again beat the number last Thursday evening, when the company posted its Q3 numbers for the world to see, reporting and EPS beat ($0.97 vs. $0.96), ORCL has now topped or matched the Street's earnings expectations for fourteen straight quarters. But the real surprise was the beat on the top line ($9.8 bln vs. $9.75 bln) after coming up short in the two preceding quarters.

more

Vail Resorts, Inc. (NYSE:MTN) Goes Downhill on Coronavirus Scare Creating New Value

Posted on Mar 17, 2020 by StockEarnings Staff

Vail Resorts, Inc. (NYSE:MTN)new link put out fiscal Q2 results on Monday afternoon, with inline results and no guidance. This last point is the important part: the fact that the company withdrew any attempt at predicting the near-term future tells you all you need to know about what they are seeing as the coronavirus takes a firm hold on consumer behavior in the US. more

Beyond Meat Inc (NASDAQ:BYND) Undercooks Q4 Results to Put 2020 Profitability in Jeopardy

Posted on Mar 07, 2020 by StockEarnings Staff

The Beyond Meat(NASDAQ:BYND) bubble is deflating again after a strong quarter and in-linerevenue guidance. The valuation on this stock above $100 did not seemsustainable for a low margin and competitive business. Now, the syntheticchickens are coming home to roost.

more

Trade Desk Inc (NASDAQ:TTD) Flashes Strength and COVID-19 Immunity Ahead

Posted on Mar 07, 2020 by StockEarnings Staff

Trade Desk Inc (NASDAQ:TTD) topped consensus for Q4 EPS and revs (+35% yr/yr to $215.94 mln) and issued upside revenue guidance for Q1 and FY20 on Thursday. Spend on company’s platform topped $1 bln for Q4, which it identified as the first time that it had ever crossed that threshold in a single quarter. Management expects gross spend on its platform to accelerate yr/yr to at least $4.24 bln.

more

Guardant Health Inc (NASDAQ:GH) Suffers from Valuation, Net Loss, and Just Plain Unlucky Timing

Posted on Feb 29, 2020 by StockEarnings Staff

It was another blow out quarter from Guardant (GH). FY20 revs were guided above estimates, but conservatively in our view. However, the stock suffered in reaction from a combination of a larger-than-expected net loss and very difficult market conditions. more

Roku Inc (NASDAQ:ROKU) Roller Coaster Ride Continues with Bottom Line Concerns

Posted on Feb 20, 2020 by StockEarnings Staff

The big point here is that the strong Q4 and strong top-line guide was expected because of the Disney+ tailwind in effect. What wasn’t expected was the company’s EBITDA warning, which is really about higher than expected investments in incremental gross profit expansion through pushing for more security in market share. In other words, it’s becoming a little more expensive to maintain its place in the streaming market pecking order. more

Tesla Inc (NASDAQ:TSLA) Burns the Bears Yet Again

Posted on Feb 09, 2020 by StockEarnings Staff

The big picture narrative, as we see it for TSLA right now, is as follows: the stock was a darling for big shorts up until mid-2019 because it hadn’t figured out the puzzle of matching up margins and scalability in its signature niche. And lots of really smart well-capitalized folks (Jim Chanos, David Einhorn, etc) believed that this puzzle was impossible to solve. And they placed massive bets against the stock on that thesis. more

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