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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.

Cintas Corporation (NASDAQ: CTAS) Earnings Expectations, Q1 2022 Earning To Benefit From Robust PPEs Demand

Posted on Sep 29, 2021 by Neha Gupta

Cintas Corporation (NASDAQ: CTAS) Earnings Expectations, Q1 2022 Earning To Benefit From Robust PPEs Demand

Cintas Corporation (NASDAQ: CTAS) will release its fiscal Q1 2022 earnings for the quarter ending August 31 on September 29, 2021, before the market open.

What to look for

Cintas benefited from growth in its healthcare and hygiene end markets and strong demand for PPEs in the most recent quarter reported. The trend is expected to have persisted in the current reporting quarter, boosting the First Aid and Safety Services segment's top-line performance. For Q1 2022, the estimated First Aid and Safety Services sector revenues is $198 million, representing a 2.9% YoY decrease and a 5.9% QoQ increase. The Uniform Rental and Facility Services segment's performance is likely to have been enhanced by the reopening of the company and increased client capacity. In addition, the All Other segment's top-line performance is projected to have been enhanced by progress in the fire businesses.

Earnings: Stockearning’s Estimated EPS for Q1 2022 is expected to top Q4 2021's EPS of $2.47. The company has reported impressive results in the last four quarters, topping estimates on all occasions. In addition, in the past 12 quarters, the company has topped estimates 12 times (100%) and missed zero times (0%).

Revenue: In Q4 2021, the company had revenue of $1.84 billion compared to $1.62 billion in Q4 2020. For the fiscal year 2021 ended May 31, the company reported revenue of $7.12 billion with EPS of $10.24 compared to revenue of $7.12 billion and EPS of $8.11 in fiscal 2020. For fiscal 2022 the company expects a revenue range of $7.53 billion to $7.63 billion with diluted EPS of $10.35 to $10.75. The effective tax rate for fiscal 2022 will be between 19.5% and 20.5%, and this high effective tax rate will negatively impact EPS guidance for 2022 by $0.85.

Stock movement: Since the last earnings release, Cintas's share price has gained 5.94% from $378.95 to the previous close of $401.47. Following the earnings release, Cintas shares have been UP 24 times out of the past 44 quarters. So, historical price reaction suggests a 54% probability of the shares going up once the company reports Q1 2022 results. According to the Stockearning algorithm, the predicted price move on the first day is 3%, while the predicted move on the seventh day is 4%.

What analysts are saying

RBC Capital analyst Ashish Sabadra commenced coverage on Cintas with a “Buy” rating and a target price of $450. According to Sabadra, Cintas is a market leader in the $25 billion uniform rental business, which is "very fragmented and huge." In addition, the analyst said that enhanced emphasis on health and safety because of the pandemic would increase the inclination to outsource uniform rental and facility services adoption.

Related News:

Micron Technology Inc. (NASDAQ: MU) Earnings Expectations, Q4 2021 Revenue of $8.2 Billion.

Palatin Technologies Inc. (NYSEAMERICAN: PTN) Earnings Expectation, 70% Probability For Share Price To Drop.

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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