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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

General Electric sees strength in all its businesses excluding power, chief financial officer Jamie Miller told CNBC's Morgan Brennan.

CNBC Fri, 20 Jul 2018 15:13 GMT

VF also raised its full-year earnings forecast, as demand for its high-margin Vans shoes soared.

CNBC Fri, 20 Jul 2018 13:26 GMT

Alphabet, Facebook and Amazon are all reporting earnings next week, with a combined market cap of $2.27 trillion. With a slew of earnings reports this massive on tap, Stacey Gilbert of Susquehanna explains what investors can expect.

CNBC Fri, 20 Jul 2018 11:29 GMT

Honeywell also raised its 2018 earnings forecast for the third time.

CNBC Fri, 20 Jul 2018 11:06 GMT

GE reports second quarter 30 percent profit drop from last year because of weakness in its power division.

CNBC Fri, 20 Jul 2018 10:20 GMT

The footwear maker reported EPS that fell well below expectations for the second quarter.

CNBC Thu, 19 Jul 2018 20:11 GMT

Microsoft beat expectations for the last quarter of its 2018 fiscal year, but reported slower growth in its Commercial Cloud, which includes Azure.

CNBC Thu, 19 Jul 2018 19:33 GMT

Taiwan Semiconductor trimmed its annual revenue and capital spending estimates.

CNBC Thu, 19 Jul 2018 14:52 GMT

Shares of eBay fell over 10 percent in trading Thursday after the company reported sluggish growth in its marketplace business.

CNBC Thu, 19 Jul 2018 14:41 GMT

Danaher said it would spin off its dental unit into a publicly traded company, as the medical equipment maker seeks to revitalize a struggling business.

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Travelers results were hurt by costly damage from wind and hail storms that pounded several U.S. regions in recent months.

CNBC Thu, 19 Jul 2018 14:01 GMT

Blackstone, the largest manager of alternative assets such as private equity and real estate, said second-quarter earnings per share rose 55 percent from one year ago.

CNBC Thu, 19 Jul 2018 11:29 GMT

The company's online ticket marketplace StubHub had a disappointing quarter, leading the e-commerce website to forecast underwhelming third-quarter results.

CNBC Thu, 19 Jul 2018 10:47 GMT

Alcoa lowered its forecast for 2018, citing U.S. tariffs on imported aluminum and rising energy costs.

CNBC Thu, 19 Jul 2018 10:26 GMT

Consumer goods maker Unilever reported lower-than-expected second quarter sales.

CNBC Thu, 19 Jul 2018 06:13 GMT

The payments company said its net income rose 21 percent year over year amid growth in member spending and fees.

CNBC Wed, 18 Jul 2018 20:12 GMT

IBM beat expectations on revenue and earnings for the second quarter, but gross margins were below estimates.

CNBC Wed, 18 Jul 2018 19:30 GMT

With 10 percent of S&P 500 companies reporting as of Wednesday morning, it looks like another above-trend quarter.

CNBC Wed, 18 Jul 2018 16:32 GMT

Abbott Labs raised its full-year earnings forecast, powered by higher sales across its businesses, including its top-earning medical device unit.

CNBC Wed, 18 Jul 2018 12:18 GMT

Morgan Stanley reported second-quarter earnings.

CNBC Wed, 18 Jul 2018 10:38 GMT

United Airlines posted first-quarter profits that topped Wall Street estimates.

CNBC Tue, 17 Jul 2018 20:26 GMT

Goldman, led by Chief Executive Officer Lloyd Blankfein, is at a crossroads.

CNBC Tue, 17 Jul 2018 11:25 GMT

Johnson & Johnson reports results from its second quarter.

CNBC Tue, 17 Jul 2018 10:22 GMT

UnitedHealth posted a second-quarter profit that beat Wall Street estimates as it added more members to its health plans.

CNBC Tue, 17 Jul 2018 10:17 GMT

Bank stocks rallied on Monday in the thick of big banks’ earnings reports, and one money manager sees bigger gains ahead.

CNBC Mon, 16 Jul 2018 20:39 GMT

Netflix missed its subscriber addition projections for the first time in five quarters, leading shares to tumble. The company added about 1 million fewer subscribers than it estimated.

CNBC Mon, 16 Jul 2018 19:31 GMT

Financials haven’t had a good month. One strategist is betting on a big bank comeback into year-end.

CNBC Mon, 16 Jul 2018 11:49 GMT

The Bank of America cost-cutting machine hummed along for another quarter.

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BlackRock, the largest asset manager in the world, on Monday reported second-quarter earnings and revenue that surpassed analyst expectations.

CNBC Mon, 16 Jul 2018 10:16 GMT

Shares of PNC Financial Services rose nearly 2 percent in premarket trading Friday after beating estimates in its second-quarter earnings report.

CNBC Fri, 13 Jul 2018 12:18 GMT

Mondelez Global LLC has voluntarily begun recalling some Ritz Cracker sandwiches and Ritz Bits products over concern that they may include an ingredient tainted with Salmonella.

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Reuters Mon, 23 Jul 2018 05:16:56 -0400

China said on Monday the value of its currency is driven by market forces and that it has no intention to devalue the yuan to help exports, after Washington said it was monitoring the currency's weakness amid the escalating bilateral trade row.

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Reuters Mon, 23 Jul 2018 05:12:48 -0400

Fiat Chrysler's new boss, Mike Manley, faces the task of executing his predecessor's plan to ramp up production of SUVs and catch up on electric cars to keep the world's seventh-largest carmaker competitive in the absence of a merger.

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Reuters Mon, 23 Jul 2018 04:41:59 -0400

China's biggest manager of bad debts is trying to exit early from at least three loans and investments as it wrestles with a liquidity crunch triggered by an anti-corruption probe into its chairman, people with knowledge of the matter said.

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Reuters Mon, 23 Jul 2018 04:35:28 -0400

Signs that the Bank of Japan could scale back its monetary stimulus faster than expected sent tremors through bond markets on Monday, while European stocks slid as threats of further U.S. tariffs on China drained risk appetite.

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Reuters Mon, 23 Jul 2018 04:21:54 -0400

Oil prices stabilized on Monday as worries over production losses were outweighed by concerns that trade disputes would reduce economic growth and hit global energy demand.

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Reuters Mon, 23 Jul 2018 04:03:29 -0400

Saudi Aramco aims to buy a controlling stake in petrochemical maker SABIC , possibly taking the entire 70 percent stake owned by Saudi Arabia's sovereign wealth fund, two sources familiar with the matter told Reuters.

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Reuters Mon, 23 Jul 2018 03:00:51 -0400

(This story corrects company description in paragraph 3 in July 22 story.)

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Reuters Mon, 23 Jul 2018 01:16:47 -0400

By almost every measure, the U.S. economy is booming. But a look behind the headlines of roaring job growth and consumer spending reveals how the boom continues in large part by the poorer half of Americans fleecing their savings and piling up debt.

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Reuters Mon, 23 Jul 2018 01:12:36 -0400

China on Monday launched an anti-dumping probe into stainless steel imports worth $1.3 billion, including from a privately owned Chinese mill with operations offshore, after complaints that a flood of product has damaged the local industry.

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Reuters Mon, 23 Jul 2018 00:28:44 -0400

Papa John's International Inc on Sunday adopted a shareholder rights plan, or a "poison pill", with a 15 percent trigger to deter existing stockholders from amassing a controlling stake in the company.

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Reuters Mon, 23 Jul 2018 00:25:16 -0400

BOC Aviation Ltd said on Monday it would buy 17 new Airbus A320NEO and A321NEO aircraft worth a combined $2.2 billion at list prices.

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Reuters Sun, 22 Jul 2018 21:19:35 -0400

Global miner BHP said on Monday it has been served with a class action proceeding in the Federal Court of Australia regarding the 2015 Samarco dam failure in Brazil.

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Reuters Sun, 22 Jul 2018 20:33:25 -0400

Global finance leaders called on Sunday for stepped-up dialogue to prevent trade and geopolitical tensions from hurting growth, but ended a two-day G20 meeting with little consensus on how to resolve multiple disputes over U.S. tariff actions.

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Reuters Sun, 22 Jul 2018 18:56:57 -0400

French technology services company Atos SE agreed to acquire Michigan-based Syntel Inc in an all-cash transaction valued at about $3.57 billion, including net debt, the companies said on Sunday.

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Reuters Sun, 22 Jul 2018 17:32:04 -0400

The United States' removal of tariffs on steel and aluminum imports is not a necessary precondition for trade talks between the United States and the European Union to begin, the European Council representative to the G20 Hubert Fuchs said on Sunday.

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Reuters Sun, 22 Jul 2018 15:15:11 -0400

European Commissioner for Economic and Financial Affairs Pierre Moscovici said on Sunday that differences of position on trade tensions remained after talks among G20 finance ministers in Argentina but the meeting was not tense.

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Reuters Sun, 22 Jul 2018 15:15:11 -0400

Fiat Chrysler Chief Executive Sergio Marchionne was being treated in a Zurich hospital on Sunday with a serious illness after suffering complications following shoulder surgery.

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Reuters Sun, 22 Jul 2018 12:04:11 -0400

Volkswagen is renting parking spaces from August to stockpile vehicles which cannot be sold due to bottlenecks caused by new engine emissions tests, a spokeswoman said on Sunday.

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Reuters Sun, 22 Jul 2018 08:29:13 -0400

German industry groups warned on Sunday, before European Commission President Jean-Claude Juncker meets U.S. President Donald Trump this week, that tariffs the United States has imposed or is threatening to introduce risk harming America itself.

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Reuters Sun, 22 Jul 2018 04:09:33 -0400

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