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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.

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

Posted on Sep 28, 2021 by Neha Gupta

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

Micron Technology Inc. (NASDAQ: MU) will release its Q4 2021 earnings today, September 28, 2021, after market close.

What to look for

Micron's fiscal Q4 earnings are expected to have been driven by considerable chip demand by data-center operators and PC manufacturers due to the stay-at-home restrictions. In addition, with the increase in remote working and students learning from home, the demand for PCs and notebooks has been enormous.

Demand for cloud storage has also been fueled by online learning and remote working trends. Additionally, global lockdowns have increased the use of internet and e-commerce services, forcing data-center operators to expand their capacity to meet the surge in demand for cloud services. These factors are expected to boost Micron’s top line for the current quarter under review. Micron depends heavily on China which is a headwind that will affect revenue because of the ongoing US-China trade wars. The restrictions on Huawei exports could hurt topline growth for the company.

Earnings: Stockearning’s Estimated EPS for Q4 is $2.23 per share, a 115% YoY growth from Q4 2020. In the past 12 quarters, the company has topped earnings estimates ten times (83%) and missed once (8%). Therefore, chances are the company will top its earnings estimates when it releases Q4 earnings. In Q3, the company topped EPS estimates of $1.63 and reported actual EPS of $1.83.

Revenue: Micron expects Q4 revenue to be around $8.2 billion representing YoY revenue growth of 30%. In Q3, the company reported revenue of $7.42 billion, a 35% jump from Q3 2020. In addition, the company set multiple product and market revenue records in Q3 with the largest sequential-quarter earnings improvement in its history.

Stock movement: Since the last earnings release, Micron shares have lost 12.9%, from $84.98 to $74.05. Following the earnings release, Micron's share price has been DOWN 26 times in the past 45 quarters. Therefore, the historic price reaction suggests a 57% chance for the share price to be DOWN once the company releases Q4 2021 results. According to the Stockearning algorithm, the predicted first-day move for the stock price is 6%, and the predicted move on the seventh day is 8%.

What analysts are saying

Raymond James analyst Chris Caso reduced his price target for the stock from $120 to $100 but maintained a “Strong Buy” rating ahead of the earnings release. Caso indicated in a research note that Micron management had signaled well the weakness in PC business during an investors conference over the quarter, which is expected. The analyst believes there is strong demand outside the PC segment, and the DRAM segment is yet to build excess supply.

Also, Citi analyst Christopher Danely lowered his price target in Micron from $135 to $120 but maintained a “Buy” rating on the stock. Danely cut estimates because of upcoming DRAM correction and anticipates DRAM prices to drop 5-10% QoQ in Q4 and 10% in the first quarter of 2022 before recovering in 2H 2022.

Related News:

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

Fonar Corporation (NASDAQ: FONR) Earnings Expectations, 52% chance For Stock Price To Fall.

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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