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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.

Least Volatile Stocks Today

Earning Date: Next Seven Days
Market Cap: More than 750M
Avg Daily Volume: More than 500K
Predicted Move - After Earning: Less 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.

Least Volatile Stocks Frequently Asked Questions

What are low volatility stocks today?

Low volatility stocks appeal to those investors who are not too comfortable with increase in volatility of market stock. Therefore, a lot of investors and traders consider low-risk stocks which have a tried and tested track record of consistent and steady performance over a tenure. In fact, it has been observed that the low volatile stocks often generate good returns than stocks with academic research findings. Some of the low volatile stocks today can be found at stock earning tool here. You can search and refine the tickers on the basis of factors that impact stock volatility.

What exactly is volatility and is it easy to spot stocks with low volatility?

Volatility, in simple terms, means swings in a stock value over a particular time. A lot of investors opine that high volatile stocks often yield higher returns because of a huge amount of risk overriding it. However, that’s not the case always. Sometimes, stocks with lesser swing in price over time can yield better returns. These are the stocks with proven track records of positive and steady returns. Low volatility stocks today aren’t so easy to spot, unless you really understand the factors that influence volatility.

How can I spot low volatility stocks today?

Determining the stock volatility isn’t so easy. But there is one crucial parameter that will help you refine your search. This parameter is called BETA. Beta figure is a determinant of volatility of a stock. This compares with S&P 500, which keeps a track of some of the largest companies trading in a stock market. Stocks with beta value “1” indicate that the price is moving in line with S&P 500. The value of “1.25” indicates that a stock is 25% more unpredictable in comparison with index. Most of the brokerage firms on the Internet indicate a beta value of company. However, you must also rely on the industry beta.

Which sectors are mostly low volatile?

Some sectors are by nature, always low volatile. The stocks belonging to these sectors must be kept an eye on. Food, beverages and household items are three main sector which are often low volatile. This is so because the products of these sectors belong to essential commodities, which is why their sale remain mostly consistent, unless in case of something out of the blue.

Which popular stocks belong to low volatile category?

Some stocks, over a consistent performance, have established themselves as popular low volatility stocks of all times. These include Procter and Gamble [NYSE: PG], Coca-Cola [NYSE: KO], Lockheed Martin [NYSE: LMT] and Kellogg Company [NYSE: K].

What are some of the least volatile funds today?

If low volatility stocks today do not appeal to you much, you can also expect some really good exposure through ETFs and mutual funds, which especially invest in low volatility stocks today and most of the times. Some of the popular low volatility funds in 2021 include Invesco S&P 500 Low Volatility ETF [NYSE: SPLV], iShares MSCI Minimum Volatility ETF [NYSE: USMV] and Fidelity Low Volatility Factor ETF [NYSE: FDLO].

Why does low volatile nature of stock matter to investors?

Simply speaking, more volatility in the stock price indicates that it has to gain even more just so as to be even. Volatility can spike a stock price, wile also considerably plunging its price. In a long term, it becomes harder for any high risk and most volatile stocks to have a good come back of what has been lost. Low volatility stocks matter to investors so as to have a consistent portfolio with versatile returns.

Are there same strategies applied over low volatility stocks today?

No. that’s not true. There is a “pure approach” and an approach which considers sector constraints to calculate volatility of stocks. You must learn about different approaches and how to derive at them, so as to have a suite of different products in your low volatility stocks today.

Are investors of low volatility stocks consider conservative?

There is no set pattern to investment. What works best for you, might not even function for someone else. A good portfolio is a mix and match of different stocks. Having said that, investors who choose low volatility stocks today may not be conservative. Lower volatility is a sign of remaining invested in stocks even when there are correction periods.

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