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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.

FedEx Corp (NYSE: FDX) Q3 2022 Earnings Miss Estimates

Posted on Mar 19, 2022 by Neha Gupta

FedEx Corp (NYSE: FDX) Q3 2022 Earnings Miss Estimates

FedEx Corp (NYSE: FDX) announced its fiscal Q3 2022 earnings report for the quarter ended February 28, 2022, on Thursday 17, 2022, in which earnings missed estimates.

What to look for: The company performed exceptionally well in the third quarter thanks to the continued execution of its strategies. Operating income improved in Q3 due to net fuel benefit and high revenue per shipment in all transportation segments. Also, results benefited from low variable compensation expense and less severe winter weather relative to a year ago. However, the Omicron variant surge dampened the high operating income, resulting in disruptions to the company's networks and lowered customer demand from January through February.

Earnings: Stockearning’s Estimated EPS was $4.59 per share compared to adjusted EPS of $3.47 a year ago. Analysts had predicted earnings per share of $4.65 for Q2 2022. Net income during the quarter was $1.04 billion or $3.88 per share compared to net income of $1.23 billion or $4.55 per share. For the full fiscal year, the company expects earnings per diluted share to be between $18.6 and $19.6 per share compared to the previous range of $18.25 to $19.25 per share. Historical EPS performance shows that the company has in the past 12 quarters the company has topped estimates 19 times (52%) and missed 17 times (47%).

Revenue: The company announced revenue of $23.6 billion compared to $21.5 billion a year ago. Operating income was $1.33 billion versus $1.01 billion in Q2 2021.

Stock movement: FDX shares have lost 5.3% since the company released its last earnings release. Interestingly, following the earnings release, the company's shares have been DOWN 30 times in the past 47 quarters. So, the historical price reaction suggests a 52% probability of the share price going DOWN following the 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 +/-5%.

What analysts are saying: Wells Fargo analyst Allison Poliniak-Cusic lowered the stock's price target from $314 to $277 and maintained a Buy rating in the stock following earnings results. Poliniak-Cusic told investors in a research note that shares may fall on Friday due to persistent fears about FedEx's capacity to exploit the present volume and return environment.

Barclays analyst Brandon Oglenski slashed the firm's price target on the stock from $345 to $320 but maintained a Buy rating on the shares after fiscal Q3 results. Olenski told investors in a research note that the company experienced another hard quarter, but the maintained 2022 projection shows cost pressures are finally abating. At the forthcoming analyst meeting in June, management laid the foundation for mid-$20 earnings per share guidance in fiscal 2023 and closer to $30 in a few years' time, according to the analyst. He believes the stock has substantial objective upside if FedEx "can attain even just near-term targets."

Citi analyst Christian Wetherbee slashed the stock’s price target from $300 to $270 but maintained a Buy rating on the stock. In a research report, Wetherbee advises investors that ground profits are unlikely to get better compared to the past year as FedEx finishes out fiscal 2022. According to the analyst, management has moved away from double-digit forecasts in the 2H, and Q4 must be 12.5 percent or lower, making the math work. Wetherbee believes FedEx's risk/reward is "skewed positively" considering the stock's price and a probable investor day event in June.

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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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