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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.

Lululemon Athletica Inc. (NASDAQ: LULU) Earnings Expectations, Q2 2022 Revenue to be Between $1.3B and $1.33B

Posted on Sep 08, 2021 by Neha Gupta

Lululemon Athletica Inc. (NASDAQ: LULU) Earnings Expectations, Q2 2022 Revenue to be Between $1.3B and $1.33B

Lululemon Athletica Inc. (NASDAQ: LULU) is expected to release its Q2 2021 earnings on September 8, 2021, after markets close.

What to look for

The leisurewear company was a standout performer over the pandemic, considering more people took regular exercise as a hobby. In recent quarters Lululemon has performed well boosted by various factors, including its position in women's activewear and expansion of the resale arm through a partnership with Trove. The solid direct-to-consumer unit will contribute significantly to sales in Q2. In addition, the company has enhanced digital growth, and in Q1, its revenue for the e-commerce segment was up 55%. Total e-commerce sales accounted for 44.4% of the company's total revenue.

Earnings: Stockearning’s Estimated EPS for Lululemon for Q2 will be $1.2 per share, representing a 60% YoY increase. Historical EPS performance shows that over the past 12 quarters, the company has beat EPS estimates 11 times (91%) and missed only once (8%). In the first quarter, the company had an actual EPS of $1.16 compared to an estimate of $0.91.

Revenue: In the first quarter, revenue was up 88% to $1.2 billion, and on a constant dollar basis, Lululemon’s net revenue was up 83%. The company reported diluted EPS of $1.11 relative to $0.22 per share in Q1 2020, while adjusted diluted earnings were $1.16 per share. For Q2 2021, the company anticipates revenue of between $1.3 billion and $1.33 billion and an earnings range of $1.05 per share and $1.1 per share with adjusted diluted earnings per share of between $1.1 and $1.15 per share. Lululemon expects full-year revenue of $5.825 billion to $5.905 billion.

Stock Movement: Lulemon stock has gained 22.4% since the last earnings release. After the earnings release, the company's stock price has been UP in 29 quarters over the past 46 quarters. Therefore historical price reaction predicts a 63% chance of share price going UP following the Q2 2022 earnings release. According to Stockearning’s algorithm, the predicted first-day move on the stock after earnings release is 8%, while the predicted move after seven days is 9%.

What analysts are saying

Recently B. Riley analysts Susan Anderson raised her price target on Lululemon from $370 to $466 and maintained the “Buy” rating on the stock. The analyst expects the company to continue posting double digital sales growth, and the solid retail trends will go on in Q2 with consumer spending increasing as they become comfortable with return in normalcy, resulting in the need for refreshing wardrobes. In addition, Anderson said that the company saw a return to in-store traffic, driving sales higher in a note to investors.

Also, JPMorgan analyst Matthew Boss raised the company's price target on Lululemon from $400 to $450 and maintained a "Buy" rating on the stock. Boss expects the company to beat Q2 sales in department stores as well as specialty softlines.

Related News:

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51job Inc. (NASDAQ: JOBS) Expected to Post EPS of $0.47 in Q2 2021

Dada Nexus Limited (NASDAQ: DADA) Earnings Expectation, Estimated EPS Loss Of $0.14

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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