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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

Ford, in a filing with the SEC, said the loss includes $2 billion associated with pension plans outside the U.S.

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American Airlines posted per-share earnings slightly ahead of expectations despite issues with the grounded Boeing 737 Max.

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Texas Instruments forecast first-quarter revenue above market expectations on Wednesday on signs of stable demand for microchips, indicating that a prolonged slowdown in the semiconductor industry was bottoming out.

CNBC Thu, 23 Jan 2020 11:47 GMT

Procter & Gamble reported quarterly sales that fell short of Wall Street estimates for the first time in five quarters.

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Franco-Italian chipmaker STMicroelectronics' fourth-quarter results beat analysts estimates on Thursday as demand for chips dedicated to the next generation of smartphones and low-emission cars helped offset a slowdown in more traditional products.

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Southwest Airlines fourth-quarter profits tumbled more than 21% because of additional costs related to the grounded Boeing 737 Max.

CNBC Thu, 23 Jan 2020 11:34 GMT

The company also said it added 442,000 new high-speed internet customers, surpassing expectations for 378,000 net adds.

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Wall Street analysts say Netflix's fourth-quarter earnings report was solid but remained concerned about U.S. subscriber growth.

CNBC Wed, 22 Jan 2020 12:34 GMT

J&J's pharmaceutical business posted revenue of $10.54 billion, a 3.5% increase year over year.

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IBM ended a streak of revenue declines in the fourth quarter following the introduction of a new mainframe computer.

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Netflix beat on the top and bottom lines for the fourth quarter, but gave disappointing first-quarter guidance.

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Halliburton beat analysts' estimates for quarterly profit, as higher drilling activity in international markets helped the oilfield services provider blunt a hit from slowing North America that led to a charge of $2.2 billion.

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Bank of New York Mellon missed analysts' estimates for quarterly profit on Thursday, as the world's largest custodian bank earned less from its interest-earning assets due to rate cuts by the Federal Reserve.

CNBC Thu, 16 Jan 2020 14:14 GMT

CEO James Gorman said that Morgan Stanley met all of the bank's performance targets.

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Quarterly profit was stung by the litigation charge, which stems from an impending settlement of the bank's 1MDB scandal.

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BlackRock, the world's largest asset manager, beat analysts' estimates for quarterly profit on Wednesday, as more money rolled into its cash management business and exchange-traded funds amid concerns of slowing global growth.

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The bank posted fourth-quarter profit of 74 cents a share, an unexpected 6% increase, helped by a reduction in outstanding shares.

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UnitedHealth reported a 16.5% rise in fourth-quarter profit on Wednesday, helped by strength in its core business that sells health plans as well as its Optum segment, which includes its pharmacy benefits management unit.

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Wells Fargo says fourth-quarter profits fell as persistent low interest rates and litigation charges weighed on its financial results.

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Citigroup reported quarterly results that beat expectations, driven by strong fixed-income trading revenues.

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Delta Air Lines reported higher-than-expected quarterly profits thanks to cheaper fuel and strong travel demand.

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CEO Jamie Dimon said the bank produced record fourth-quarter revenue, aided by the rebound in trading from a challenging period a year ago.

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This week's kickoff of earnings season comes with low expectations for profit growth but high expectations for stock prices.

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Lululemon Athletica raised its quarterly sales and profit outlook on Monday, boosted by strong holiday season demand.

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L Brands cut its earnings outlook for its fiscal fourth quarter.

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J.C. Penney piled on to U.S. department store chains' holiday sales declines, saying its same-store sales over a nine-week period that ended on Jan. 4 dropped 7.5%.

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Kohl's said same-store sales during November and December fell 0.2% due to weakness in its core women's apparel business, leading it to target the low end of a previously issued full-year outlook.

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The upbeat results and raised forecast signal that the brewer benefited from its efforts to beef up its beer portfolio through launches of variants such as Modelo Chelada Limon y Sal and Corona Refresca.

CNBC Wed, 08 Jan 2020 13:33 GMT

Lennar on Wednesday forecast 2020 home sales above analysts' estimates, encouraged by strong demand on the back of lower home prices and mortgage rates, sending its shares up 3%.

CNBC Wed, 08 Jan 2020 13:30 GMT

Walgreens remains under pressure as more consumers shop online for drugstore staples such as shampoo and vitamins.

CNBC Wed, 08 Jan 2020 12:10 GMT

(This Jan. 22 story corrects attribution in first and second paragraphs to Chief Commerical Officer Andrew Nocella from President Scott Kirby)

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Reuters Thu, 23 Jan 2020 10:47:37 -0500

U.S. stock indexes fell on Thursday, as mounting worries over a coronavirus outbreak in China, disappointing corporate earnings and weakness in financial stocks prompted investors to hit the brakes after a strong rally this year.

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Reuters Thu, 23 Jan 2020 10:39:46 -0500

Healthy travel demand should continue to cushion results for American Airlines Group Inc and Southwest Airlines Co , the two said on Thursday, even as the prolonged Boeing 737 MAX grounding weighs on costs and profits.

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Oil prices fell on Thursday on concern that the spread of a respiratory virus from China could lower fuel demand if it stunts economic growth in an echo of the SARS epidemic nearly 20 years ago.

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Reuters Thu, 23 Jan 2020 09:57:38 -0500

The dollar rose against the euro on Thursday after the European Central Bank left unchanged its key interest rates and stimulus programs and launched a broad review of its policy that was likely to see new President Christine Lagarde redefine the ECB's main goal and how to achieve it.

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Procter & Gamble Co on Thursday posted quarterly sales that missed analysts' expectations for the first time in five quarters, hurt by weakness in baby and feminine care products such as Pampers diapers and Tampax tampons.

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The European Central Bank launched a broad review of its policy on Thursday that is likely to see new President Christine Lagarde redefine the ECB's main goal and how to achieve it.

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British supermarket group Morrisons plans to cut 3,000 management jobs as part of a workforce restructuring that will create 7,000 frontline jobs in its stores, it said on Thursday.

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Tesla Inc has overtaken Germany's Volkswagen as the world's second most valuable carmaker behind Japan's Toyota , as the meteoric rise in the U.S. electric vehicle maker's shares reshuffles the global market.

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John Kapoor, the founder of Insys Therapeutics Inc , on Thursday could be sentenced to several years in prison and ordered to forfeit up to $113 million for his role in a bribery and fraud scheme that contributed to the U.S. opioid crisis.

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Reuters Thu, 23 Jan 2020 09:20:31 -0500

Southwest Airlines Co said on Thursday that the Boeing 737 MAX grounding will continue weighing on its profits in the first quarter and warned that it will likely extend flight cancellations beyond June as the jets look set to remain parked longer than expected.

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The drab exteriors of a pair of 1970s buildings in an industrial Warsaw neighborhood belie the hive of high-tech activity inside where developers, screenplay writers and others at leading video game maker CD Projekt hustle to create the next global hit.

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Reuters Thu, 23 Jan 2020 08:56:56 -0500

American Airlines Group Inc edged past Wall Street estimates for quarterly profit on Thursday, as strong travel demand and lower fuel costs cushioned the U.S. carrier from flight cancellations due to the 737 MAX grounding.

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Reuters Thu, 23 Jan 2020 08:33:11 -0500

JetBlue Airways Corp said on Thursday it had shaved $314 million off its cost base over the past three years, delivering on a cost-cutting drive designed to enable budget-friendly airfares over the next decade. Curbing costs is a priority for many companies, but particularly for airlines like JetBlue, where costs have been rising faster than for many peers and whose business model depends on fares that can compete with legacy airlines.

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