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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 Earnings News | Investor Financial Market News

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Fidelity's operating income rose 19 percent last year, while revenue increased 12 percent to a record $20.4 billion.

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Dropbox beat estimates in the top and bottom lines and had more new paid users than expected. The stock moved lower after the company gave guidance.

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Domino's shares sink after the pizza chain disappointed investors with weaker-than-expected earnings and revenue.

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Garmin reported quarterly results that beat Wall Street estimates on Wednesday on the back of higher demand for its smartwatches and navigation systems and forecast full-year revenue above expectations.

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CVS Health shares crater after the company disappointed investors with a lower-than-expected earnings forecast for the year as it integrates Aetna.

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Medical device maker Medtronic on Tuesday beat Wall Street estimates for quarterly profit, driven by higher sales in its surgical products unit and restorative therapies group.

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Walmart outpaces analysts' earnings and revenue expectations, as its e-commerce sales surge 43 percent.

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Under Armour says U.S. sales fell 6 percent during the fourth quarter to $965 million, while international sales climbed 28 percent.

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Skechers stock rocketed higher after giving strong profit guidance for the quarter ahead while reporting better-than-expected fourth-quarter earnings Thursday evening.

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Hasbro's fourth-quarter earnings missed estimates by a wide margin, but investors shrugged off the news, after the company outlined a promising slate of new toys for 2019.

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Expedia boosted fourth-quarter revenue by selling more hotel rooms and airline tickets, but write-downs pushed profit down 69 percent, to $17 million.

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Shares of Barbie owner Mattel skyrocketed as much as 20 percent on Thursday, after the company reported better-than-expected fourth-quarter earnings and revenue after the closing bell.

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Fears of an earnings recession are cropping up in the market as company profits are expected decline for the first time in two years. Three experts weigh in on whether or not the markets can outlast earnings woes

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Philip Morris International on Thursday reported quarterly earnings and revenue that beat analysts' expectations.

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Shares of Dunkin' Brands dropped 6 percent Thursday after the company reported flat same-store sales growth, saying it focused all of its attention during the quarter on rolling out espresso drinks in its stores.

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Tapestry blamed falling tourist spending and a slowing global economy for a cut in its forecast for full-year adjusted profit on Thursday, as it reported disappointing holiday numbers and a fall in sales at Kate Spade handbags.

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Twitter expects operating expenses to increase 20 percent in 2019. It will also change the way it reports monthly active users.

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Chipotle reported quarterly earnings and revenue that beat analysts' expectations, thanks to increasing foot traffic.

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After recommending Match Group for years, Deutsche Bank has finally decided to "swipe left" on the online dating platform.

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Capri Holdings CEO John Idol said that the company expects to deliver both double-digit revenue and adjusted earnings-per-share growth for the full year, and that the Michael Kors brand should return to growth next year.

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EA and Take-Two Interactive are both keeping an eye on threats from free-to-play games like "Fortnite."

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Eli Lilly cut its 2019 profit forecast on Wednesday, hit by a recent trial failure of conditionally approved cancer treatment Lartruvo and costs related to its pending acquisition of Loxo Oncology.

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"Yes, it was a beat relative to consensus, but we think you have to take this report with a grain of salt," CFRA analyst Garrett Nelson says.

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Already earnings season has seen many companies have cited increased costs as an issue, including Harley-Davidson, Caterpillar, Eastman Chemical, Fortune Brands Home and Ford.

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Shares of EA fell after the video game maker reported Q3 2019 earnings.

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The company is ramping up expansion of its streaming products, ESPN+ and Disney+.

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Snap shares soared in after-hours trading on Tuesday after the company lowered losses, beat on revenue and stabilized its user base.

CNBC Tue, 05 Feb 2019 20:31 GMT

A beat on the top and bottom lines would normally send a stock up, not down.

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Bespoke Investment's Paul Hickey sees stocks rallying amid disappointing guidance as a bullish sign.

CNBC Tue, 05 Feb 2019 13:29 GMT

President Donald Trump said on Friday there was "a very good chance" the United States would strike a deal with China to end their trade war and that he was inclined to extend his March 1 tariff deadline and meet soon with Chinese President Xi Jinping.

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Reuters Fri, 22 Feb 2019 21:54:44 -0500

U.S. President Donald trump said on Friday he may or may not include Chinese telecommunications companies Huawei Technologies and ZTE Corp in the trade deal being negotiated between the United States and China.

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Reuters Fri, 22 Feb 2019 21:54:44 -0500

Some Microsoft Corp employees on Friday demanded that the company cancel a $480 million hardware contract to supply the U.S. Army, with 94 workers signing a petition calling on the company to stop developing "any and all weapons technologies."

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Reuters Fri, 22 Feb 2019 20:52:01 -0500

Kraft Heinz Co shares fell to a record low on Friday a day after the food company disclosed a $15 billion write-down on its marquee brands, raising concern that years of rigorous cost cutting have eroded the value of its Kraft cheeses and Oscar Mayer deli meats.

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Reuters Fri, 22 Feb 2019 20:11:38 -0500

New York Governor Andrew Cuomo on Friday ordered two state agencies to investigate a media report that Facebook Inc may be accessing far more personal information than previously known from smartphone users, including health and other sensitive data.

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Reuters Fri, 22 Feb 2019 18:52:47 -0500

A Brazilian judge on Friday suspended negotiations for the tie-up of Brazilian aircraft maker Embraer SA and Boeing Co, according to a court document.

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Reuters Fri, 22 Feb 2019 18:22:23 -0500

In trade talks between the United States and China, Memorandums of Understanding - the building blocks of what would be a historic deal - are officially out.

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Reuters Fri, 22 Feb 2019 18:17:11 -0500

When Federal Reserve policymakers last month put a three-year rate-hike campaign on hold and backed ending a yearlong push to shrink their $4 trillion balance sheet, they cited increased risks to U.S. economic growth and the need for more time to sort through the data.

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Reuters Fri, 22 Feb 2019 18:09:23 -0500

A flattening U.S. yield curve in December, which was close to being inverted, was "flashing red" about a deceleration in U.S. economic growth heading into 2019, despite some solid data at the time, New York Federal Reserve President John Williams said on Friday.

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Reuters Fri, 22 Feb 2019 18:09:04 -0500

Fiat Chrysler Automobiles NV (FCA) has set an annual compensation target for Chief Executive Officer Mike Manley consisting of pay, cash and equity bonuses of $14 million, the automaker said in a regulatory filing on Friday.

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Reuters Fri, 22 Feb 2019 17:50:20 -0500

The S&P 500 posted its highest closing level since Nov. 8 on Friday as investors clung to signs of progress in the ongoing trade talks between the United States and China.

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Reuters Fri, 22 Feb 2019 17:25:30 -0500

The Trump administration will fall "a little under" its target of 3 percent annual growth of gross domestic product for 2018, the Federal Reserve said Friday in a report that offers an economic scorecard of sorts for the first full year of President Donald Trump's term.

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Reuters Fri, 22 Feb 2019 17:21:12 -0500

Canada's Barrick Gold Corp said on Friday it considered making an all-stock bid for U.S. rival Newmont Mining Corp, a deal that would create a monolith in the global gold sector and likely push smaller peers to start buying each other.

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Twitter Inc said on Friday one of its co-founders, Evan Williams, will be stepping down as a member of its board at the end of the month.

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Reuters Fri, 22 Feb 2019 17:07:57 -0500

Stocks rose in major markets across the world on Friday on bets of progress in trade talks between China and the United States, while crude futures hit their highest level in more than three months supported by ongoing supply cuts.

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Reuters Fri, 22 Feb 2019 17:06:20 -0500

Newmont Mining Corp said on Friday it was aware that Canadian rival Barrick Gold Corp said it had studied an unsolicited buyout proposal for the company, a deal that would, if consummated, bring together two of the world's leading gold producers.

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Reuters Fri, 22 Feb 2019 17:00:47 -0500

Oil prices touched their highest since mid-November on Friday and posted weekly gains for the second week in a row, boosted by hopes that U.S.-China trade talks would soon produce a deal, although new record U.S. oil supply limited gains.

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Reuters Fri, 22 Feb 2019 15:52:52 -0500

Intel Corp executives said on Friday its 5G modem chips will not appear in mobile phones until 2020, raising the possibility its biggest customer, Apple Inc, will be more than a year behind rivals in delivering a device that uses the faster networks.

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Reuters Fri, 22 Feb 2019 15:49:46 -0500

The Federal Reserve's promise in January to be "patient" about further interest rate hikes, putting a three-year-old process of policy tightening on hold, calmed markets after weeks of turmoil that wiped out trillions of dollars of household wealth.

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Reuters Fri, 22 Feb 2019 15:48:47 -0500

U.S. President Donald Trump said on Friday that if he sees progress being made in trade talks with China, he may be inclined to extend negotiations beyond a March 1 deadline, and suggested it was likely the globe's two largest economies would be able to make a deal.

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Reuters Fri, 22 Feb 2019 15:09:24 -0500

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