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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.

Predicted Move (Volatility)

Similar to Implied Volatility in Options. Expected volatility % based on our Proprietary Volatility Predication Model. We are expecting that stock price will likely to reach % in either direction by the end of next trading session after Earnings are released and not necessarily the closing volatility %.

Why is it important?

    This indicator helps

  1. Knowing expected volatility in stocks after Earnings helps to decide trading stocks before Earnings Announcement.
  2. Taking Advantage of volatility collapse following Earnings Results by using Advance Options strategies such as Spread and Straddles.

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.

Most Volatile Stocks in Earnings

These stocks tend to be the most volatile stocks following Earnings result.


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Earning Date: Next Seven Days
Market Cap: More than 750M
Avg Daily Volume: More than 500K
Predicted Move - After Earning: More than 5%
Symbol/Company Earning Date Earning Time Predicted Move
Next Day
Predicted Move
After 7 Days
Options Type EST EPS Market Cap Previous Closing
Price

Predicted Move (Volatility)

Predicted Move (Volatility) Similar to Implied Volatility in Options. The predicted move (volatility) % is based on our proprietary Volatility Prediction Model. We are expecting that stock price may likely move % in either direction by the end of the next regular trading session in Earnings reaction. The move may not necessarily be the closing volatility %.

Why is it important?

  1. Knowing expected volatility in stocks in Earnings reaction helps in deciding whether to trade stocks or not prior to Earnings announcement.
  2. Taking advantage of volatility collapse following Earnings results by using Options strategies such as Spread and Straddle.

Predicted Move (Volatility) - 7th Days

Expected volatility on 7th day since Earnings results.

Why is it important?
  • If Historical price change on 7th day is higher than price change on next day, stock tends to gain more from Earnings result. It supports Buy In Post-Earnings strategy.
Lower Upside reaction on 7th day
  • If Historical price change on 7th day is less than price change on next day, stock tends to give up from next price gain. It supports Sell In News strategy.
Further Downside reaction on 7th day
  • If Historical price change on 7th day is less than next day drop, stock tends to drop even more from Earnings result.
Less Downside reaction on 7th day
  • If Historical price change on 7th day is less than next day drop, stock tends to recover from next price drop. It supports Buy In Dip strategy.

Top Volatile Stocks Frequently Asked Questions

What are the most volatile stocks?

Volatility of any stock is determined by fluctuation in its price in a given frame of time. Most volatile stocks can indicate fluctuations in price in a day of as much as over hundred percent. In a market that is developed already, the volatility remains low, and may not exceed past 20-30% in slow periods. Fluctuation in stock price doesn’t seem obvious when you look at the stocks which are priced below $1. To spot fluctuations, you must see change in price in percentage.

Why is stock volatility important?

Volatility is primarily statistical measure, which is used to understand the range of stock return or return of market index. This volatility is measured in the form of deviation through variance between returns. Stock volatility should be seen as a pendulum. It is equal to that amount which a stock separates from its mean price (known as original price).

Is it wise to invest in most volatile stocks?

Remember volatility is for those who are active investors. One of the best things about the most volatile stocks is that volatility is a measurable parameter. Therefore, it is feasible to act upon it strategically. Since the risk is high, therefore comparatively the returns can be high as well. One of the best parts of most volatile stocks is their obvious upside benefits, which are comparatively higher than simpler long positioned stocks that you hold for longer duration in your portfolio.

Which sectors have the most volatile stocks?

Stock market sectors have a personality of their own. Some sectors remain generally volatile. There are stocks in these sectors which bounce like yo-yo over a short period of time. The most volatile stocks mostly belong to these sectors- energy, commodities, financial, technology, consumer discretionary, communication services, health care and utilities.

What is the reason for stock volatility?

There can be various factors which affect stock volatility. Among them the major ones include trader emotions, such as panic and fear. This is also known as noise trader risk. These are the risk factors which are adjoined with traders who give in to emotions and cause gargantuan sell offs or stock purchase. Other factors which cause a stock to fall in the category of most volatile include major events, uncertain market, positive and negative political scenario in a country and so on. These factors can create a trend of high volatile stocks, which moves their share price up or down. Apart from these factors, scenarios like pandemic, inflation, depression, recession, political unrest, strikes, famines, droughts, revolutions and wars can be a cause of high volatile stock.

Can private equity and hedge funds cause high stock volatility?

Hedge funds, as well as private equity firms can stir stock volatility. Sometimes these organizations may be under huge amounts of debt which is incurred because of financing stock market investments. Due to this reason, they may be forced to make a sell off of their assets in markets which are declining. Large-lot sales of stocks can create big changes in price of a stock.

How is stock volatility calculated?

Standard deviation method is used for mathematical calculation of investment volatility.

What should a prospective investor understand about most volatile stocks?

A prospective investor must understand that high volatile stocks have riskier security. In simple terms, volatile market means that the stock market is falling and rising over 1% in a sustained time period.

How should I handle most volatile stocks?

There are some strategies that you can use to handle your most volatile stocks. These include- not to abandon the plan, staying invested in the high volatile stocks, staying diversified, making sure to take an active risk management approach, and finally, having a good financial professional to guide you through.

Why do traders seek high volatile stocks despite high risk?

Most volatile stocks are the favourites among active traders who often take advantage of strategies with short-term momentum, and intra-day price action.

How should I find the most volatile stocks?

In order to search for the high volatile stocks, you don’t need to worry a lot. This isn’t a complex process. You can simply run stock screen meant for those stocks which remain consistently volatile. Another important factor to consider here is the volume of stocks. You can use some apps or websites which are used as filters to track high volatile stocks.

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