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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.

Nvidia Corporation (NASDAQ: NVDA) Earnings Expectation, EPS of $1.22 per share on Revenue of $7.43 Billion

Posted on Feb 15, 2022 by Neha Gupta

Nvidia Corporation (NASDAQ: NVDA) Earnings Expectation, EPS of $1.22 per share on Revenue of $7.43 Billion

Nvidia Corporation (NASDAQ: NVDA) has confirmed the release date for its Q4 2021 earnings report, which will be on Wednesday, February 16, 2022, before the market opens.

What to look for: The ongoing strength in the data centre business following increased adoption of cloud-based solutions in the wake of pandemic induced remote working trend is expected to boost Q4 revenues. Also, the increase in hyper-scale demand and growing adoption in the inference market will act as tailwinds for the quarter under review. In addition, the company's growth opportunities in high-performance computing, ray-traced gaming and AI were driving factors for Q4 2021 growth. Equally, a series of blockbuster AAA titles that pledged support for the company's RTX ray racing tech could also be a catalyst for results.

Earnings: Stockearning’s estimated EPS for Q4 2021 is expected to be $1.22 per share, representing YoY growth of 56.4%. The company produced an earnings surprise of 6.32% in the last quarter, with actual earnings of $1.01 per share. Historical EPS performance shows that in the past 12 quarters, the company has topped EPS estimates 32 times (88%), met twice (5%) and missed twice (5%).

Revenue: Fourth-quarter revenue is expected to be around $7.43 billion suggesting a YoY increase of 48.5 %. In the third quarter, the company had revenue of $7.1 billion, a YoY increase of 50% with data centre revenue of $2.94 billion and gaming revenue of $3.22 billion, representing a YoY increase of 55% and 42%, respectively.

Stock Movement: NVDA 1shares have dropped 18.2% since the company released its third-quarter earnings. Interestingly, NVDA shares have been UP 28 times out of the past 47 quarters. So, the historical price reaction suggests a 59% 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 +/-6%, while the predicted move on the seventh day is +/-9%.

What analysts are saying: Citi analyst Atif Malik has a price target of $350 on Nvidia with a Buy rating despite the company terminating its anticipated purchase of SoftBank's ARM because of various regulatory challenges to finalizing the transaction. Malik told investors that the merger was widely expected to fail to gain regulatory approval in a research note. According to the analyst, SoftBank will keep the $1.25 billion prepaid by the company, and Nvidia will keep its 20-year Arm license. Nvidia aims to record a $1.36 billion charge in the first quarter of the fiscal year 2023, including the $1.25 billion prepayments supplied upon signing, according to Malik, who also mentions that Nvidia plans to debut Grace, its computer processing division, in 2023. The analyst claims that the company can pursue this plan with the twenty-year ARM license without controlling Arm.

BofA analyst Vivek Arya reiterated a Buy rating on the stock with a price target of $375. Vivek has confidence regarding momentum ahead of 2022 in the data centre, gaming and the autos opportunities/nascent omniverse. Capacity is still a bottleneck, as demand surpasses supply throughout 2021, particularly in gaming. However, according to Arya's research note to investors, management stated that they are striving o secure supply and expect limitations to ease in 2H 2022. According to the analyst, Nvidia is a top computing selection. He believes it is better placed to address some of the most critical, multi-decade secular growth prospects.

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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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