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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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Cheerios cereal maker General Mills missed analysts' estimates for quarterly sales, hit by lower demand for its snacks and yogurts in the U.S.

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FedEx's employee compensation and other expenses weighed on results.

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Oracle reported revenue that missed analysts' estimates even as profit was better than expected.

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GameStop, the world's largest video game and gaming console retailer, reported a lower-than-expected quarterly profit on Thursday due to lower sales of video game software at its outlets.

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Broadcom forecast current-quarter revenue largely above estimates on higher demand for components that power data centers.

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The company's stock drops more than 9 percent, adding to its 14.7 percent decline this year.

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The athletic apparel retailer also raises its profit and sales outlook for the full year.

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Shares of American Outdoor Brands Corporation jumped more than 20 percent after the bell on Thursday after the company reported earnings that beat Wall Street analysts' expectations.

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Sales at Dick's Sporting Goods stores open for at least 12 months also tumbled by a bigger-than-expected 4 percent during the quarter ended Aug. 4, which was partly blamed on Under Armour.

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Hewlett Packard Enterprise said it grew revenue by 3.5 percent in its fiscal third quarter.

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Shares of DSW surge after the company posted quarterly results that easily topped analyst expectations.

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Tiffany topped quarterly same-store estimates as the upscale retailer sold more jewelry in the Americas and Asia-Pacific regions.

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"Fortnite" live streams are pulling in numbers that are bigger than some cable television shows.

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The news overshadows a beat on earnings and revenue for the second quarter.

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HP beat analysts' expectations for the fiscal third quarter, and guidance was in line with estimates.

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The maker of chip design software is benefiting from rising demand from semiconductor clients.

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Victoria's Secret has struggled as it has lost touch today's consumer, who craves comfort over sultry.

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Lowe's on Wednesday reported second-quarter earnings and revenue that surpassed analysts' expectations, but same-store sales fell short and weren't nearly as strong as those of rival Home Depot.

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Kohl's shares tumbled Tuesday morning despite releasing second-quarter earnings that beat analysts' profit and sales estimates. The retailer raised its profit outlook for the year, but it wasn't enough to please investors.

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Medtronic posted a better-than-expected quarterly profit, helped by higher sales in its top-selling cardiac and vascular business.

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Concerns over rising costs and the impact of trade tensions between the U.S. and China weighed on shares of leading miner BHP.

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U.S. luxury home builder Toll Brothers on Tuesday topped Wall Street estimates for quarterly profit, as stronger housing demand helped it sell more homes at higher prices.

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Retail earnings are in full swing, and this week it's Lowe's and Target's turn as two of the big-box retailers report on their recent quarters. Only one looks a winner to these market watchers.

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Applied Materials' disappointing forecast is adding to fears that a two-year chip boom may be losing steam.

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The United States is getting "very, very close" to having to move forward on its trade deal with Mexico without Canada, White House economic adviser Kevin Hassett said on Friday.

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Reuters Fri, 21 Sep 2018 21:28:53 -0400

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United Airlines pilots said they refuse to budge on the wording of their contract governing the outsourcing of regional flights.

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Industrials led the Dow to a new closing high on Friday ahead of Monday's major sector reshuffle, capping a week that largely shrugged off trade worries.

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Reuters Fri, 21 Sep 2018 17:23:23 -0400

An overhaul of Wall Street's technology and media sectors coincided with the quarterly expiration of futures and options, bringing a burst of volume to trading late on Friday that could continue in the days that follow.

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Reuters Fri, 21 Sep 2018 17:20:27 -0400

Apple Inc's latest iPhones hit stores around the world on Friday, featuring components made by Intel Corp and Toshiba among others, according to two firms that cracked open the iPhone Xs and Xs Max models.

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Reuters Fri, 21 Sep 2018 17:16:47 -0400

The U.S. dollar rebounded and world shares hit a six-month high on Friday after China's moves to boost domestic consumption bolstered a rally driven by investor bets that the latest U.S.-China trade dispute was unlikely to dent global growth.

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Reuters Fri, 21 Sep 2018 16:57:59 -0400

Walmart Inc said that it may hike prices of products if the Trump administration imposes a tariff on Chinese imports, according to a letter the company wrote to U.S. Trade Representative Robert Lighthizer two weeks ago and seen by Reuters on Thursday.

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Farfetch priced its shares above its targeted range on Friday in a New York flotation that values the online luxury retailer at over $5.8 billion and underscores how big a bet web sales have become for high-end brands.

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Reuters Fri, 21 Sep 2018 14:36:05 -0400

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