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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.

Kohl’s Corporation (NYSE: KSS) Earnings Expectation, Fiscal Q4 2022 EPS of $2.31 on Sales of $6.86 Billion

Posted on Mar 01, 2022 by Neha Gupta

Kohl’s Corporation (NYSE: KSS) Earnings Expectation, Fiscal Q4 2022 EPS of $2.31 on Sales of $6.86 Billion

Kohl’s Corporation (NYSE: KSS) has confirmed the release date for its Q4 2022 earnings report, which is on Tuesday, March 1, 2022, before the market opens.

What to look for: The company implemented strategic initiatives to transform it into a top destination for a casual and active lifestyle. Kohl had an impressive third quarter, with sales and margins topping expectations. When the company releases its Q4 2022 earnings, investors will be keen to see if the company maintains the momentum witnessed in the previous quarter.

Earnings: Stockearning’s Estimated EPS for fiscal Q4 2022 is expected to be around $2.31 per share, representing a YoY decline of 4.05%. The company had adjusted earnings of $1.65 per share up from earnings of a penny per share a year ago and more than doubles analysts' estimates of $0.64 per share. As a result, full-year adjusted earnings will range between $7.1 and $7.3 per share. Historical EPS Performance shows that the company has in the past 12 quarters topped estimates 27 times (75%) and missed nine times (25%).

Revenue: The company is expecting revenue of $6.86 billion in Q4 2022, representing YoY growth of 11.68%. In the third quarter, the company had net sales of $4.37 billion, a 15.5% growth, topping estimates of $4.27 billion. The company anticipates revenue to grow by a mid-twenties percentage rate for the whole year, an increase from the previous projection of low twenties.

Stock movement: KSS shares have gained 2.2%% since the company released its Q3 2022 earnings. Interestingly, the company’s shares have been DOWN 26 times out of the past 48 quarters. So, the historical price reaction suggests a 52% probability of the share price going DOWN following the fiscal Q1 2022 earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-6%, while the predicted volatility on the seventh day is +/-6%.

What analysts are saying: JPMorgan analyst Matthew Boss raised his price target on Kohl’s from $55 to $61 and maintained a Hold rating on the shares ahead of Q4 2022 earnings results.

Deutsche Bank analyst Gabriella Carbone slashed her price target on KSS from $86 to $75 and maintained a Buy rating on the stock. According to the analyst, the clothes retail sector will report in line results for Q4, with the omicron increase and higher-than-anticipated freight and supply chain expenses likely to "put a lid on any upside." She expects Q1 guidance to be lower than Wall Street expectations. Carbone slashed multiples across the board to reflect the uncertainty caused by supply chain issues, rising freight prices, increased input costs, and the possibility of higher promotional efforts as inventories grow.

BofA analyst Lorraine Hutchinson moved to No Rating in the stock following reports that the company had received letters expressing interest to acquire its. She cited her belief that the “stock is no longer trading on fundamentals.” Cowen analyst Oliver Chen increased his price target on the stock from $73 to $75 and maintained a Buy rating on the stock. According to his leveraged buyout returns analysis, the prospective bid assuming 3.7x TTM EV/EBITDA appears to be quite low. The analyst stated that a deal would almost certainly necessitate the monetization of $3 billion or more in real estate through a sell leaseback. Other financial/strategic suitors are possible, says the analyst.

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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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