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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

AutoZone shares drop after worries of rising costs for the company were raised during its quarterly earnings call.

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Deep discounts helped bring more bargain hunters into its T.J. Maxx and Marshalls apparel stores.

CNBC Tue, 22 May 2018 14:12 GMT

Kohl's has been experimenting with partnerships to help drive traffic to its stores.

CNBC Tue, 22 May 2018 11:10 GMT

U.S. luxury home builder Toll Brothers' second-quarter profit missed Wall Street estimates on Tuesday.

CNBC Tue, 22 May 2018 10:15 GMT

Earnings growth of more than 20 percent has been the worst time for stock market performance.

CNBC Sat, 19 May 2018 15:25 GMT

The department store chain blames the declines on a cooler start to the spring season.

CNBC Thu, 17 May 2018 12:03 GMT

After a disappointing e-commerce performance last quarter, Walmart says U.S. online sales grew 33 percent.

CNBC Thu, 17 May 2018 10:38 GMT

Cisco beat earnings and revenue estimates for its fiscal fourth quarter but saw its stock fall anyway after hours.

CNBC Wed, 16 May 2018 20:14 GMT

Macy's says it had a healthier inventory position to start the year and saw a boost from international tourism.

CNBC Wed, 16 May 2018 11:16 GMT

Home Depot says sales were hurt by a "slow start to the spring selling season."

CNBC Tue, 15 May 2018 09:48 GMT

Nissan announced the company and Renault SA were considering options to ensure the existing alliance will continue.

CNBC Mon, 14 May 2018 13:11 GMT

Taiwan's Foxconn, supplier to Apple, posted a 14.5 percent fall in first-quarter net profit.

CNBC Mon, 14 May 2018 12:29 GMT

ArcelorMittal said the outlook for 2018 had improved after a sharp pick-up in steel prices and increased iron ore shipments helped it deliver higher-than-expected earnings.

CNBC Fri, 11 May 2018 11:52 GMT

Thomson Reuters on Friday reported slightly higher-than-expected first-quarter sales and earnings.

CNBC Fri, 11 May 2018 11:47 GMT

Too many cryptocurrency clients and fewer cloud computing orders than expected underwhelmed Nvidia investors on Thursday.

CNBC Fri, 11 May 2018 09:32 GMT

Total revenue at the company, which is controlled by media mogul Rupert Murdoch, rose to $2.09 billion from $1.98 billion.

CNBC Thu, 10 May 2018 21:12 GMT

Dropbox beat expectations across the board in its first-ever earnings report.

CNBC Thu, 10 May 2018 19:31 GMT

IAC CEO Joey Levin penned a letter assuring shareholders the Match Group parent company was well-positioned to compete with Facebook in the dating space.

CNBC Wed, 09 May 2018 19:44 GMT

Fox's earnings come as investors look for updates on a sale of most of the company. While Fox's board unanimously approved Disney's offer, Comcast may make a competing bid.

CNBC Wed, 09 May 2018 19:31 GMT

The company's first-quarter financial report hits after the bell.

CNBC Wed, 09 May 2018 14:45 GMT

The options market is implying a small move in Roku shares on earnings compared with its two prior reports.

CNBC Wed, 09 May 2018 11:09 GMT

Toyota Motor on Wednesday forecast a 4.2 percent slide in operating profit for the current financial year.

CNBC Wed, 09 May 2018 04:53 GMT

Disney's earnings report comes as its blockbuster deal with Twenty-First Century Fox looms over the rest of the entertainment industry.

CNBC Tue, 08 May 2018 19:04 GMT

The owner of Terra chips is in the process of selling its protein business.

CNBC Tue, 08 May 2018 15:15 GMT

Jim Cramer says Caterpillar is "running back" its "high-water mark" comment made during last month's earnings call.

CNBC Tue, 08 May 2018 15:01 GMT

Valeant Pharmaceuticals reported first-quarter loss compared with a year-ago profit and said on Tuesday it would change its name to Bausch Health Companies.

CNBC Tue, 08 May 2018 11:27 GMT

A first-quarter earnings beat and an updated full-year outlook sent Shake Shack shares soaring on Friday.

CNBC Fri, 04 May 2018 15:27 GMT

Apparel and footwear company VF Corp. on Friday reported first-quarter revenue that topped Wall Street estimates.

CNBC Fri, 04 May 2018 13:47 GMT

Alibaba reported a 61 percent increase in fourth-quarter revenue, beating analyst estimates.

CNBC Fri, 04 May 2018 12:02 GMT

Newell Brands said on Friday it would sell its packaging business Waddington Group to Novolex, a company owned by buyout firm Carlyle Group, for about $2.3 billion.

CNBC Fri, 04 May 2018 10:57 GMT

WASHINGTON (Reuters) - U.S. President Donald Trump on Tuesday floated a plan to fine ZTE Corp and shake up its management as his administration considered rolling back more severe penalties that have crippled the Chinese telecommunications company.

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Reuters Tue, 22 May 2018 15:10:36 -0400

(Reuters) - Wall Street gave up earlier gains and were little changed on Tuesday afternoon after U.S. President Donald Trump said he was not pleased with the recent U.S.-China trade talks and also raised doubts about the upcoming North Korea summit.

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Reuters Tue, 22 May 2018 13:46:21 -0400

(Reuters) - General Electric Co is working with investment bankers to find ways to shed its insurance business, which has caused it to book hefty charges while sparking shareholder lawsuits and an investigation by U.S. regulators, people familiar with the matter said on Tuesday.

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Reuters Tue, 22 May 2018 14:48:26 -0400

KHOBAR, Saudi Arabia/LONDON (Reuters) - OPEC may decide to raise oil output as soon as June due to worries over Iranian and Venezuelan supply and after Washington raised concerns the oil rally was going too far, OPEC and oil industry sources familiar with the discussions told Reuters.

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Reuters Tue, 22 May 2018 14:51:57 -0400

BRUSSELS (Reuters) - Facebook boss Mark Zuckerberg apologized to European Union lawmakers on Tuesday for a massive data leak, in his latest attempt to draw a line under a scandal that has rocked the world's biggest social media network.

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Reuters Tue, 22 May 2018 14:50:45 -0400

(Reuters) - J.C. Penney's Chief Executive Officer Marvin Ellison is leaving the struggling retailer to join home improvement chain Lowe's Cos Inc , the companies said on Tuesday, sending shares in the U.S. department store chain down as much as 8 percent to an all-time low.

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Reuters Tue, 22 May 2018 12:44:47 -0400

(Reuters) - Consumer Reports said Tuesday it will retest brakes on Tesla Inc's new Model 3 sedans after Chief Executive Elon Musk promised a software update, but the potential hit to sales from the magazine's negative review weighed on Tesla stock.

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Reuters Tue, 22 May 2018 14:42:42 -0400

BRUSSELS (Reuters) - European Union proposals to open its markets wider to U.S. products, including cars, appear not to have persuaded Washington to lift the threat of import tariffs on EU steel and aluminum, the bloc's trade chief said on Tuesday.

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Reuters Tue, 22 May 2018 11:28:11 -0400

WASHINGTON (Reuters) - The share of Americans who report they are doing "at least okay" financially rose in President Donald Trump's first year in office, according to Federal Reserve data published on Tuesday.

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Reuters Tue, 22 May 2018 13:36:53 -0400

TOKYO (Reuters) - Sony Corp said on Tuesday it would pay about $2.3 billion to gain control of EMI, becoming the world's largest music publisher in an industry that has found new life on the back of streaming services.

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Reuters Tue, 22 May 2018 10:52:39 -0400

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