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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.

Yum! Brands Inc. (NYSE: YUM) Earnings Expectation, Q4 2021 EPS of $1.08

Posted on Feb 07, 2022 by Neha Gupta

Yum! Brands Inc. (NYSE: YUM) Earnings Expectation, Q4 2021 EPS of $1.08

Yum! Brands Inc. (NYSE: YUM) has confirmed that it will release its quarterly earnings results on Tuesdays, February 8, 2022, after the market closes.

What to look for

The company indicated that the delta variant spread had weakened demand for its chicken, pizza, and tacos across Asia in the past quarter. However, interestingly the company reported that it was witnessing increased digital sales momentum, with system-wide digital sales hitting $5 billion during the quarter. When the company reports its Q4 2021 earnings, investors will be keen to see how it steered through the challenges and whether it managed to grow sales and earnings.

Earnings: Stockearning’s Estimated EPS for Q4 2021 is expected to be around $1.08 per share. In the last quarter, the company announced earnings of $1.22 per share, topping consensus estimates of $1.08. historical EPS Performance shows that in the past 12 quarters, the company has topped earnings estimates eight times (66%), matched estimates once (8%), and missed thrice (25%).

Revenue: The company is expected to post-sales ranging between $1.85 billion and $1.95 billion compared to sales of $1.74 billion in the same quarter a year ago, representing a growth of 7.5%. In the third quarter, the company topped consensus sales estimates for $1.59 billion to report net sales of $1.61 billion, representing a YoY growth of 11%. For the full year, the company expects to report revenue of $6.67 billion, and for next year, sales are expected to range between $6.95 billion and $7.18 billion.

Stock movement: YUM shares have lost 2.8% since the company released its third-quarter earnings. Interestingly, YUM shares have been DOWN 24 times out of the past 47 quarters. So, the historical price reaction suggests a 51% probability of the share price going DOWN once the company reports its fiscal Q4 2021 earnings. According to the Stockearning algorithm, the predicted first-day move is 3%, while the predicted move on the seventh day is 4%.

What analysts are saying

BofA analyst Sara Senatore reinstated coverage on YUM with a Hold rating with a price target of $157. The analyst told investors on a research note that Yum! Brands is executing well despite challenging comps ahead amid the spike in home consumption at the beginning of the pandemic, and the maturity of its operations in China could impact unit growth.

However, Senatore added that Yums! Brands' upside in EBITDA stability is possibly “limited.” Barclays analyst Jeffrey Bernstein increased his price target on YUM from $133 to $140 but maintained a Hold rating on the stock. Bernstein anticipates "more tailwinds than headwinds" this year for restaurants. In a research note, the analyst told investors that pandemic concerns are easing with little impact on sales, food inflation is plateauing and easy compares ahead, easing labor shortages, and labor inflation will resume normalized increases after the 2021 wage reset.

Oppenheim analyst B. Bittner analysts dropped the company’s Q4 2021 EPS estimates in a research note to investors on Friday, January 7, 2022. Bittner now expects the company to post EPS of $1.07 per share, down from the previous estimate of $1.18. The firm expects Yum! Brands’ Q1 2022 earnings to be $1.12 per share, Q2 2022 earnings of $1.23, Q3 2022 earnings of $1.22, and Q4 2022 EPS of $1.32. For the full year, Oppenheimer expects EPS of $4.89 and EPS of $5.6 per share in FY2023.

Related News

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Bristol-Myers Squibb Company (NYSE: BMY) Expects Q4 2021 EPS of $1.84 on revenue of $12 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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