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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.

Medtronic PLC (NYSE: MDT) Q1 2022 Earnings is Expected to be $1.32

Posted on Aug 23, 2021 by Anne Perry

Medtronic PLC (NYSE: MDT) Q1 2022 Earnings is Expected to be $1.32

Medtronic PLC (NYSE: MDT) will release its earnings on August 24, 2021, before the market opens, and the estimated earnings per share for the quarter is 1.32. The results are expected to reflect a robust product demand rebound across Medtronic’s primary business segments during the first fiscal quarter as normalcy returned because of reduced cases and mass vaccination. The demand rebound will boost the company’s fiscal Q1 topline.

Increasing product demand to boost revenue in Q1 2022

Since the start of the year, Medtronic has consistently outperformed the markets by launching new products driving share gains in its expanding businesses. The impact of the COVID-19 pandemic on procedures is likely to reflect on market share growth, more so on the Cardiac Rhythm Management segment, which had significant market share gain in the past quarter. The bullish momentum is expected to continue to fiscal Q1 2022 attributable to Crome and Cobalt High Poer devices and Micra leadless pacemaker.

In May 2021, the company noted that it could lose some points of share YoY in the Neurovascular segment because of the latest competitive floe diverters from Terumo and Stryker. Interestingly the company expected shares to stabilize sequentially in Q1 based on the Solitare X 3-millimeter stet retriever launch in the US and the limited pipeline vantage flow diverter launch in some CE mark markets.

Notably, the company's hospital customers have shown recovery signs, with capital equipment purchases gaining momentum. In addition, the use of the company's equipment such as energy consoles, navigation systems, and robotics connected to procedures has grown as hospitals prioritize spending on the equipment. As a result, this will reflect in the quarterly results the company will release.

Medtronics topped analysts' earnings and revenue estimates in Q4

In May, when the company released its Q4 2021 results, it topped estimates with earnings of $1.5 per share and net revenues of $8.19 billion compared to the same period a year before when revenue was $6 billion.

Medtronics indicated that its expected organic growth in Q1 is to be 17% to 18%, with a currency tailwind between $200 million and $250 million. In addition, Medtronics predicted Cardiovascular sales to grow 14% to 15%, neuroscience to increase 25% to 26%, medical Surgical to be up 18%-19%, and Diabetes sales to remain flat YoY.

MDT has a 91% chance of beating earnings estimates

For the current quarter, Stockearning's estimated EPS is $1.32. Over the past 12 quarters, historical EPS performance shows that the company has topped earnings in 11 quarters (91% of times) and only missed once (8% of times). For instance, in Q4 2021 estimated EPS was $1.42, but the actual EPS reported was $1.5.

In the past, following earnings releases, Medtronic stock has been DOWN 25 times in the past 46 quarters. However, since the last earnings release, Medtronic has gained 2.9%. As per Stockearning's algorithm the first day predicted move after the release of results is 2% and 3% on the seventh day.

Historical data shows that next-day trading volume is around 8.9 million shares relative to the average daily volume of 5.24 million shares. Usually, if the trading volume of Medtronic is below 50% in extended hours the day after earnings results, there is a high chance of the stock moving in that direction in regular trading.

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Anne 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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