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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.

Predicted Move (Volatility)

Similar to Implied Volatility in Options. Expected volatility % based on our Proprietary Volatility Predication Model. We are expecting that stock price will likely to reach % in either direction by the end of next trading session after Earnings are released and not necessarily the closing volatility %.

Why is it important?

    This indicator helps

  1. Knowing expected volatility in stocks after Earnings helps to decide trading stocks before Earnings Announcement.
  2. Taking Advantage of volatility collapse following Earnings Results by using Advance Options strategies such as Spread and Straddles.

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.

Arista Networks (NASDAQ: ANET) Beats Q4 2021 Revenue and Earnings Estimates

Posted on Feb 15, 2022 by Neha Gupta

Arista Networks (NASDAQ: ANET) Beats Q4 2021 Revenue and Earnings Estimates

Arista Networks (NASDAQ: ANET) released its Q4 2021 earnings report on Monday, February 14, 2022, after market close. Shares jumped after the company reported earnings and revenue that topped estimates.

What to look for: The company demonstrated resilience and flexibility in 2021 and maintained operational excellence despite the industry-wide challenges managing to deliver its first billion-dollar cash flow. Arista hit record milestones in 2021 in innovation, earnings and diversified client momentum. The company is currently better placed in the fast-growing networking sector.

Earnings: Stockearning’s Estimated EPS for fiscal Q4 2021 was expected to be $0.74 per share, but the company reported adjusted EPS of $0.92 per share relative to $0.62 per share a year ago. in the third quarter, the company produced an earnings surprise of 3.48% at $0.6 per share. Historical EPS Performance indicates that the company has, in the past 12 quarters, topped estimates in all quarters (100%). Net income was $293.3 million or $0.75 per share compared to $183 million or $0.58 per share a year ago. The company reported GAAP net income of $840.9 million or $2.63 per diluted share and non-GAAP net income of $915 million or $2.87 per diluted share for the full year.

Revenue: The cloud computing company reported revenue of $824.5 million, beating Wall Street estimates of $790.6 million. Revenue was up 10.1% QoQ and 27.1% YoY. In addition, the company reported revenue of $2.95 billion for the full year, representing a YoY increase of 27.2%. Arista expects revenue to range between $840 million and $860 million for the quarter ending April 2022, with a non-GAAP gross margin of 63%-64% and a non-GAAP operating margin of around 38%.

Stock movement: Arista Networks shares have gained 18.4% since the company released its third-quarter earnings. Interestingly, the company’s shares have been UP 17 times out of the past 30 quarters. So, the historical price reaction suggests a 56% probability of the share price going UP following the fiscal Q4 2021 earnings release. According to the Stockearning algorithm, the predicted first-day move is +/-8%, while the predicted move on the seventh day is +/-9%.

What analysts are saying: Loop Capital analyst Fahad Najam commenced coverage in ANET with a Buy rating and price target of $157 while also stating that the stock was his Top 2022 Pick. According to the analyst, Arista is a networking business with considerable prospects in the hyper-scale Data Center Switching sector and an increasing total target market expansion in the corporate Campus Switching market. In addition, according to Najam, Arista has the greatest management team in the industry, and the company's mentality of innovating in advance of its clients enables it to "continue to disrupt" the network infrastructure industry.

Citi analyst Jim Suva upgraded ANET from Hold to Buy but maintained his price target of $150. Suva told investors in a research note that while the stock has dropped 17% since the start year, the stock's fundamentals are good, with customer expenditure growing. The analyst sees the company's February 14 earnings report as a favourable driving force and advises investors to buy the stock on the latest pullback. Suva writes in a research note that Arista is "not a cheap value stock," but rather a "top high growth stock."

Keybanc analyst Thomas Blakey commenced coverage on ANET with a Buy rating and a price target of $165. Blakley sees substantial expansion for Arista connected to the possible positive revisions in Enterprise and states that his above consensus projections in the business are likely to be conservative.

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Arista Networks Inc. (ANET) Earnings Expectations, Revenue of $750.58 million, and EPS of $0.74

Neha has a passion for understanding the real value of stocks in publicly traded markets. She has a BA in Finance and a Masters in microeconomics. Anne has worked as a consultant advising buy-side firms and long-only equity fund managers. At stocksearning.com, she anchors our fundamental research writing desk.

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