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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.

has confirmed Earnings date and time. It is on Fri 30 Jul (55 days ago).
The Algorithm predicts "% Predicted Move After Earnings Announcement" (PMAEA) for AMSSY three weeks prior to earnings date. Knowing PMAEA for AMSSY three weeks before Earnings Announcement can provide unique advantages in trading Earnings.
Please visit FAQ section to learn on how we calculate PMAEA for AMSSY and how we use it to trade Earnings successfully.

Earnings Date : Fri 30 Jul (55 days ago)   

Before Market Open (Confirmed)
Following Earnings result, share price were UP 3 times out of last 7 Qtrs
So, Historical price reaction suggests 42% probability for share price to go UP following ER!
Click Here to View Historical Price Reaction Into Earnings.

Since Last Earnings 0.3%

Price at Last Earnings: 9.50 Previous Closing Price: 9.53

Stock Price Change Since Last Earnings Released: 0.3%

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  • Predicted Move on 1st Day: Login to view
    Predicted Move on 7th Day: Login to view
  • Stock Price Change Since Last Earnings Released:   0.3%
    Price at Last Earnings: 9.50
    Previous Closing Price: 9.53
  • Historical EPS Performance for last 12 Qtrs
    Total Beat: 0 (0%) Total Meet: 0 (0%) Total Miss: 0 (0%)
    Click Here for detail AMSSY ESP Chart

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(AMSSY) Frequently Asked Questions

1. What does "predicted % change after earnings announcement" mean?

It represents the stock predicted price change after the latest earnings call. If the stock price announcement is positive, it will facilitate a percentage increase before the end of the trading session after the earnings release. A negative announcement will facilitate a percentage decrease before the trading session ends.

2. Why is the "Predicted Move" for AMSSY an important consideration for investors?

The goal for individual traders and hedge fund managers it to ensure that they continue making profits while avoiding potential losses. It would be less than ideal to have AMSSY in your portfolio and then the morning after the company's call, a bearish AMSSY performance wipes out a significant chunk of your portfolio value. Performance predictions allow traders to execute a hedging strategy to protect their portfolio from unfavorable earnings which could lead to a major price drop.

We guide our clients on how to develop hedging strategies which will cushion them from a big drop in case the company announces displeasing earnings. Options traders can leverage the predicted move using strategies such as ride-the-wave, volatility-crush and volatility rush. Predicted move also allows day traders to decide whether to trade or avoid a stock.

3. What does Predicted Move After Earnings Announcement (PMAEA) for AMSSY mean? How can I use it to improve my trading?

AMSSY's PMAEA is Predicted Move for AMSSY is 6% and traders can use it in their volatility-crush and volatility-rush strategies.

4. How do you calculate AMSSY's PMAEA?

There are multiple factors to consider in the algorithm used to calculate AMSSY's predicted move:

  • a. Analysing AMSSY's past stock price performance after earnings announcements.
  • b. Evaluating demand and supply activities around AMSSY's earnings.
  • c. Studying the company's fundamentals.
  • d. Keeping track of peer companies and the price changes that happen after earnings releases in the same quarter as AMSSY’s scheduled announcements.

5. What does "Predicted Move on the 7th Day" mean? How can PM7thDay help me improve my strategy?

PM7thDay is a custom indicator for AMSSY. The current PM7thDay value is at 11% and it can be incorporated into the Ride-the-wave strategy.

6. What is AMSSY's next day trading volume?

It refers to AMSSY’s post-earnings trading volumes and it is not the same as the stock's average daily volume. AMSSY's next day trading volume is often 5 or 6 times more than the value of its average daily volume. The stock’s next day trading volume is 0.

7. AMSSY stock has rallied by 6% after its last earnings call. How can I use this information to my advantage?

Keep in mind that a stock tends to be extra sensitive to market news if it rallies by more than 10% after the previous earnings call. Also worth noting is that a 10% decline after the previous earnings call is a strong indicator that the stock has a lot of bearish potential. In this case, the stock will be extra sensitive to good news which means that it will have some potential upside if good news is released.

8. What options strategy can traders leverage for AMSSY.?

AMSSY's current predicted move is 6% which in other words means that the stock price is expected to move by 6% in either direction. If traders sell Put on Weekly Front Options where the strike price is as close as 12% from current stock price, then it is less likely that the stock will hit the strike price. This means that AMSSY options would be worthless upon expiry thus the trader retains the entire premium. You can also consider adding the 2nd leg on AMSSY stock by buying the Put option on the same Weekly Front Options with lower strike price. So your margin does not get tied up.

The above represents a good strategy which allows traders to benefit from highly volatile price movements during an AMSSY earnings call. Caution is necessary when executing the strategy because success is not guaranteed. The ideal scenario would be the AMSSY options expiring while worthless but in case it drops to the trader's strike price, then the trader has to execute a counter-strategy, which in this case would be to buy the stock.

% 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.

Historical Volatility Next Day

Next Day Volatility (% Day High - % Day Low). It is a different from % closing price.

Why is it Important?

It is a very helpful indicator for gap trading because you could have a company that swings 5% +- but their final percent move is only a fraction.

Benefit of adding stock into watchlist:

1. Earning Dates Reminder: You will receive email reminders prior to the earnings date. Here is reminder frequency:

  • a. Sunday Alert: Last Sunday of Earnings Dates at 6PM EST
  • b. Two Days in Advance Alert: Two days before Earnings Date at 12PM EST
  • c. Same Day Alert: The Day of Earnings at 12:00AM EST

Reminder emails also include our proprietary predictive indicator which predicts the next-day volatility in earnings.

2. Proprietary Indicators in Watchlist: It includes more than just Earnings Date and time. It also includes our following proprietary indicators:

  • a. % changes Since Last Earnings
  • b. % Next Day Volatility Predictive Indicator

3. Write Comments for each Stock: It provides ability to write comments for each stock. With access to this feature, it becomes easier to keep track of a selected strategy for each stock.

Predicted Move (Volatility) - 7th Calendar Day

Expected volatility on 7th day since Earnings results.

Why is it Important?

Higher Upside reaction on 7th day
  • If historical price change on 7th day is higher than price change on next day, stock tends to gain more from Earnings result. It supports Buy In Post-Earnings strategy.
Lower Upside reaction on 7th day
  • If historical price change on 7th day is less than price change on next day, stock tends to give up from next price gain. It supports Sell In News strategy.
Further Downside reaction on 7th day
  • If historical price change on 7th day is less than next day drop, stock tends to drop even more from Earnings result.
Less Downside reaction on 7th day
  • If historical price change on 7th day is less than next day drop, stock tends to recover from next price drop. It supports Buy In Dip strategy.

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