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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.

Booking Holdings Inc. (NASDAQ: BKNG) Earnings Expectations, Q4 2021 EPS of $12.73 and Revenue of $2.9 Billion

Posted on Feb 22, 2022 by Neha Gupta

Booking Holdings Inc. (NASDAQ: BKNG) Earnings Expectations, Q4 2021 EPS of $12.73 and Revenue of $2.9 Billion

Booking Holdings Inc. (NASDAQ: BKNG) has confirmed that it will release its fiscal Q4 2021 earnings report on February 23, 2022, after market close.

What to look for: When the company reports its results, it is expected that uncertainties related to the pandemic are likely to have affected earnings. Equally, travel market disruptions due to the Omicron variant are expected to reflect Q4 results. However, there is growing optimism regarding the travel markets due to the current vaccination drive globally, which will have acted as a tailwind in the fourth quarter. In addition, the relaxation of travel restrictions in most parts of the world will be another positive for Booking Holdings. Also, rising air ticket bookings and growing international and domestic boings momentum will drive revenues.

Earnings: Stockearning’s Estimated EPS for the fourth quarter is expected to be $12.73 per share compared to a year ago when the company reported a loss of $0.57 per share. In the third quarter, the company produced an earnings surprise of 19.46%, with actual EPS of $37.7. Historical EPS performance shows that the company has, in the past 12 quarters, topped EPS estimates 31 times (88%) and missed four times (11%).

Revenue: In the fourth quarter, the company expects revenue of $2.9 billion, representing a YoY increase of 134.3%. The company had revenue of $4.68 billion in the third quarter beating estimates of $4.16 billion. The top line grew 77% YoY on a reported basis and 76% in a constant currency basis.

Stock movement: BKNG shares have gained 7.4% since the company released its third-quarter earnings. Interestingly, the company’s shares have been UP 30 times out of the past 48 quarters. So, the historical price reaction suggests a 62% probability of the share price going Up following the fiscal Q4 2021 earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-5%, while the predicted volatility on the seventh day is +/-6%.

What analysts are saying: Piper Sandler analyst Thomas Champion slashed his price target on BKNG from $2,750 to $2,470 but kept a Hold rating on the shares. Although the omicron outbreak has "clouded the picture," Champion told investors in a research report that the longer-term track remains one of continuous improvement. According to the expert, travel in the United States in 2022 will be significantly nearer to 2019 levels than it was in 2020 and 2021. He did, however, "tweak lower" his long-term projections for Booking.

Jefferies’ John Colantuoni assumed coverage of BKNG with a Buy rating and a price target of $3,100 as he took over coverage of the Online Travel segment. The analyst who maintains the firm's current ratings indicates that he sees exposure to the burgeoning travel market giving BKNG seven years of more than 15% EPS growth.

RBC Capital analyst Brad Erickson upgraded the stock from Hold to Buy but maintained his price target of $2,700. He believes that the market undervalues the company's substantially superior profitability compared to pre-pandemic levels and cites its limited susceptibility to the "subtle direct booking trend" that the US property manager checks have detected. As a result, the company could witness enhanced market share gain in the United States, according to Erickson.

Related News

Dropbox Inc. (NASDAQ: DBX) Tops Q4 2021 Earnings and Revenue Estimates.

Williams Companies Inc. (NYSE: WMB) Expects EPS of $0.31 in Q4 2021 and Revenue of $2.71 Billion.


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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