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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.

Alphabet Inc. (NASDAQ: GOOGL) Earnings Expectation, Q4 2021 Revenue of $72.09 billion

Posted on Feb 01, 2022 by Neha Gupta

Alphabet Inc. (NASDAQ: GOOGL) Earnings Expectation, Q4 2021 Revenue of $72.09 billion

Alphabet Inc. (NASDAQ: GOOGL) has confirmed that it will report its Q4 2021 earnings on Tuesday, February 1, 2022.

What to look for

The company's shares have lost 8% year to date, and investors will be keen on how it performs on its cloud platform. The segment that has been instrumental to the company's growth, and if the company performs well, it will help the stock rebound.

Earnings: Stockearning’s Estimated EPS for Q4 2021 will be $29.41 per share, beating consensus estimates of $27.41 per share. Google reported a slight increase in net income margin in 2020, and the figure is expected to increase in fiscal 2021, with the company expecting EPS of $111.6 for the full year. Historical EPS Performance for the past 12 quarters shows that the company has topped estimates 10 times (83%) and missed twice (16%).

Revenue: The company is expected to report revenue of $72.09 billion in Q4 2021 above consensus estimates of $69.5 billion. The Google Cloud segment ad YouTube Ad segment revenue will continue driving results. The company reported full-year revenue of $182.5 billion in the previous year, driven by growth in the two segments.

Stock Revenue: GOOGL shares have lost 4.3% since the company released its third-quarter earnings. Interestingly, GOOGL shares have been UP 20 times out of the past 32 quarters. So, the historical price reaction suggests a 62% probability of the share price going UP once the company reports its fiscal Q4 2021 earnings. According to the Stockearning algorithm, the predicted first-day move is 4%, while the predicted move on the seventh day is 5%.

What analysts are saying

Credit Suisse analyst Stephen Ju slashed his price target on GOOGL shares from $3,450 to $3,400 and maintained a Buy rating on the shares. In a research note, the analyst told investors that the launch of the infinite scroll in October 2021 and the resulting managed ad volume rise was a major driver of what will be a good Q4 print.

AB Bernstein analyst Mark Shmulik slashed his price target on the stock from $3,350 to $3,250. The analyst indicated that most of the company’s revenue growth drivers are likely to witness incremental headwinds in 2022. Weaker e-commerce revenue will impact search ad revenue, YouTube will face competition from TikTok, and cloud growth could need additional investment. Shmulik added that the company’s margin performance in 2021 was phenomenal, but investors should be ready for a decline. The analyst said that hiring ramps, investments in VR/AR, and acquisition of new buildings suggest that the company is opening its pockets following recent caution. Cloud and YouTube will experience softness with margins being under some pressure considering hiring, but all that has been telegraphed well.

BofA analyst Justin Post raised his price target on GOOGL from $3,210 to $3,470 and maintained a Buy rating on the shares. The analyst predicts a slowdown in search growth in 2022, compared to the 41% rise predicted in 2021. However, he believes Google is still in the initial stages of using machine learning and artificial intelligence tech over its ad stack. In a research note, Post assures investors that these new projects, like Performance Max, "can continue to produce strong search revenue growth." Furthermore, the analyst notes that momentum for YouTube Shorts "appears strong." The predicted YouTube commercialization of $10.92 per user, according to Post, "still seems early" and ought to benefit from the continuous decrease in Television ratings and change in spending.

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Neha has a passion for understanding the real value of stocks in publicly traded markets. She has a BA in Finance and a Masters in microeconomics. Anne has worked as a consultant advising buy-side firms and long-only equity fund managers. At stocksearning.com, she anchors our fundamental research writing desk.

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