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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.

Stock Trade Alerts (1-Day Hold)

At the heart of this strategy is our proprietary algorithm, which predicts whether a stock will go up or down in the trading session following its earnings announcement.

Holding period for 1-day hold alert is only one day so your funding does not get stuck for long time.

Think these trade alerts will help you make more money trading? You bet they will.

In fact, over time this strategy has proven to be a consistent winner for us (we’ve generated more than 249% returns with it over the last 12 quarters).

One thing to keep in mind is that you will see significant volatility trading the 1-Day Hold Strategy. For example, one trade can generate a 10% return…yet it could just as easily cost you 10%.

If you are looking for less volatile results, go to our 7-Day Hold Alerts.

Below are the key components you’ll find on the 1-Day Hold Alert Strategy Chart:

  • -Stock Symbol represents the company you want to go long or short on
  • -Trade Open Date is the specific day and time to enter the trade
  • -Trade Close Date is the specific day and time to exit the trade
  • -Trade Action (Long or Short) tells you to buy (which is going long the stock). Sell short is to enter a short position in the stock.
  • -Next Day Volatility Prediction represents our predicted volatility in the stock during the 1-day holding period (so we know exactly how much movement to factor into our trading strategy)

IMPORTANT NOTE: We recommend paper trading this strategy for a while in order to develop confidence in it.

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Symbol/Company Trade Open Date Time Trade Close Date Time Trade Action (Long or Short) Next Day Volatility Prediction
Symbol/Company Trade Open Date Time Trade Close Date Time Predicted Trade Action Resulting Profit/Loss (%)

Frequently Asked Questions

How do I get started with the Stock Trade Alert for the 1-Day Hold Strategy?

You should paper trade this strategy for at least one quarter in order to fully understand how it works, and you should start with small amounts of money once you advance to live trading.

Consistency is critical – use this strategy on several stocks during earnings season in order to spread out your risk (don’t be greedy by risking too much money on one stock!).

Research is key as well – make sure every stock you’re considering for this strategy aligns with your goals and tolerance for risk.

When buying the original position, should we buy at 3:59pm EST or try to purchase during the day when prices may be lower (such as at lunch time or a time determined by the chart)?

We have performed backtesting on buying a position at 3:59pm EST for over 30 quarters. It works well. That's why we are recommending it. But if you can find a lower price at middle of the day or a favorable price determined by the chart, you should go for that.

Do your predictions for the 1-Day Hold Strategy cover US and Canadian stocks?

Currently we cover about 150 stocks for this strategy from both the US and Canada.

How do you conduct your analysis for the 1-Day Hold Strategy?

We analyze over 40 parameters related to companies’ earnings through our proprietary algorithm. We then manually dissect these parameters to find patterns that allow us to predict the directional move of stocks based on their reactions to previous earnings announcements. So our predictions are derived from both technology and good old-fashioned human brainpower.

Currently I only see a few stocks on the page for the 1-Day Hold Trade Alert. How often do you update this page?

You’ll see fewer trade alerts outside of earnings seasons, and more during an earnings season.

Do you have any back-testing or past performance data for the 1-Day Hold Strategy?

Yes! We have back-testing data for more than 12 quarters, as well as predictions released for the current quarter.

Check out our back-testing stock trade alert here.

When buying the original position, should we purchase at 3:59 p.m. EST or try to purchase during the day when prices may be lower?

We have performed back-tests on positions initiated at 3:59 EST for over 30 quarters, and have found waiting until that time works extremely well (as evidenced by our 249% returns over the last 12 quarters). That’s why we recommend it…but if you can find a lower price before the close, or a favorable price as determined by technical analysis, then feel free to trade based on them.

How many predictions do you post at a time for the 1-Day Hold Stock Trade Alert?

We post up to 20 predictions for the 1-Day Hold Stock Trade Alert (we recommend you visit the predictions page every day so you don’t miss any opportunities).

How many predictions do you post at a time for the 1-Day Hold Stock Trade Alert?

We post up to 20 predictions for the 1-Day Hold Stock Trade Alert (we recommend you visit the predictions page every day so you don’t miss any opportunities).

How many predictions do you post at a time for the 1-Day Hold Stock Trade Alert?

We post up to 20 predictions for the 1-Day Hold Stock Trade Alert (we recommend you visit the predictions page every day so you don’t miss any opportunities).

All your trades for 1-Day Hold Alerts have a recording time of 3:59pm EST. It is impossible for me to make trades which are close at that same time is a stock price a lot different at varying times. So how do you do?

We refer to On-the-Market-Close when we say 3:59pm EST. Brokerage Firms like Fidelity, TD Ameritrade and E-Trade allow to place trades for On-the-Market-Close in the advance. So, you don’t need to place trades at the same time at 3:59pm.

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