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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.

eBay Inc. (NYSE: EBAY) Earnings Expectation, Q4 2021 EPS of $0.82 on revenue of $2.6 Billion

Posted on Feb 22, 2022 by Neha Gupta

eBay Inc. (NYSE: EBAY) Earnings Expectation, Q4 2021 EPS of $0.82 on revenue of $2.6 Billion

eBay Inc. (NYSE: EBAY) has confirmed the release date for its Q4 2021 earnings, which is on Wednesday, February 23, 2022, after.

What to look for: The company’s business thrived at the start of the pandemic, with consumers turning to online shopping. However, with millions of people receiving COVID-19 jabs, consumers have resumed their old shopping ways. The shift in behaviour has hurt the company's customer engagement and sales. Also, increasing supply chain constraints and shortages will feature prominently in the company's upcoming earnings release. It is one metric investors will be keen on once the company declares its results.

Earnings: Stockearning’s Estimated EPS for the quarter under review is expected to be around $0.82 per share. In the third quarter, the company produced an earnings surprise of 2.78% with actual EPS of $0.74. Historical EPS Performance shows that in the past 12 quarters, the company topped estimates 23 times (65%), matched thrice (3%) and missed five times (14%).

Revenue: For fiscal Q4 2021, the company expects revenue of $2.6 billion. In the third quarter, the company reported revenue of $2.5 billion, topping projected revenue of $2.46 billion. Gross merchandise volume dropped 10% in the third quarter to 19.5 billion from a year ago. GMV is vital in measuring transaction value on the platform.

Stock Movement: EBAY shares have lost 22.8% since the company released its third-quarter earnings. Interestingly, the company’s shares have been UP 27 times out of the past 48 quarters. So, the historical price reaction suggests a 56% probability of the share price going UP following the fiscal Q4 2021 earnings release. According to the Stockearning algorithm, the predicted first-day move is +/-5%, while the predicted move on the seventh day is +/-6%.

What analysts are saying: JPMorgan analyst Doug Anmuth reinstated coverage on EBAY with a Hold rating and a price target of $70 after a period of restriction. Anmuth told investors in a research note that the company has executed well to simplify its portfolio and enhance margins, but product innovation efforts are still in the early days.

UBS analyst Kunai Madhukar assumed coverage on EBAY and upgraded the stock from Hold to Buy with a target price of $80. The analyst believes Wall Street is underestimating eBay's advertising potential, especially because it recently introduced three new advertisement units, including offsite advertisements "which will not be constrained by inventory," compared to solely promoted ads previously. In addition, because eBay's take rate is smaller than that of other platforms like Etsy and Amazon, business-to-consumer sellers that offer on several platforms may potentially spend more in advertising fees if quicker sales velocity ensued, according to Madhukar.

Guggenheim analyst Seth Sigman downgraded eBay from Buy to Hold and slashed the price target to $80 from $85 as he assumed coverage on the stock. He finds a compromise between his positive assessment of leadership and their strategic vision and short-term growth pressure, dropping buyer counts, higher competition dynamics, and a "near-peak" value.

Goldman Sachs's Eric Sheridan reinstated coverage on EBAY with a Hold rating and price target of $84. According to the analyst, eBay will face "a few important discussions in the years ahead" about how its regulated growth will stabilize in a post-pandemic environment and whether it can find the right balance between the need to spend in broader platform expansion ambitions and profitability.

Related News

Dropbox Inc. (NASDAQ: DBX) Tops Q4 2021 Earnings and Revenue Estimates.

Williams Companies Inc. (NYSE: WMB) Expects EPS of $0.31 in Q4 2021 and Revenue of $2.71 Billion.

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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