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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.

Symbol/Company Earnings Date Predicted Move Since Last Earnings EST EPS
LITE - Lumentum Holdings Inc
Today -
Before Open
6% -14.1% 1.14
FOSL - Fossil Group Inc
Today -
After Close
13% -37.6%
FIT - Fitbit Inc
Today -
After Close
11% 0%
MNKD - Mannkind Corp
Today -
After Close
7% -26.4% -0.04
KODK - Eastman Kodak Co
Today -
After Close
7% 0%
GOOS - Canada Goose Holdings Inc
Tomorrow -
Before Open
13% 20.8% -0.04
YETI - YETI Holdings Inc
Tomorrow -
Before Open
8% 12.2% 0.19
PLUG - Plug Power Inc
Tomorrow -
Before Open
7% -53% -0.08
BABA - Alibaba Group Holding Ltd
Tomorrow -
Before Open
3% -16.4% 1.47
PBR - Petrobra
Tomorrow -
Before Open
3% 10.4% 0.26
CODX - Co-Diagnostics Inc
Tomorrow -
After Close
13% -36.5% 0.20
ACB - Aurora Cannabis Inc
Tomorrow -
After Close
5% -43.5% -0.17
DIS - Walt Disney Co
Tomorrow -
After Close
2% -4.8% 0.35
GNUS - Genius Brands International Inc
Mon 17 May -
Before Open (5 Days)
3% 0%
IQ - iQIYI Inc
Tue 18 May -
Before Open (6 Days)
8% -46.9% -0.32
BIDU - Baidu Inc
Tue 18 May -
Before Open (6 Days)
6% -38.5% 0.68
HUYA - HUYA Inc
Tue 18 May -
Before Open (6 Days)
6% -35.3%
NTES - NetEase Inc
Tue 18 May -
Before Open (6 Days)
5% -9.4% 0.78
M - Macy's Inc
Tue 18 May -
Before Open (6 Days)
5% 12.9% -0.43
SE - Sea Ltd
Tue 18 May -
Before Open (6 Days)
4% -7.9% -0.56
WMT - Walmart Inc
Tue 18 May -
Before Open (6 Days)
3% -5.2% 1.21
HD - Home Depot Inc
Tue 18 May -
Before Open (6 Days)
2% 19.9% 2.91
TTWO - Take Two Interactive Software Inc
Tue 18 May -
After Close (6 Days)
6% -21.3% 0.37
VIPS - Vipshop Holdings Ltd
Wed 19 May -
Before Open (7 Days)
10% -28.8% 0.34
JD - JDcom Inc
Wed 19 May -
Before Open (7 Days)
5% -18.5% 0.32
YY - JOYY Inc
Wed 19 May -
Before Open (7 Days)
5% -17.1% -0.39
TGT - Target Corp
Wed 19 May -
Before Open (7 Days)
4% 12.4% 2.09
LOW - Lowes Companies Inc
Wed 19 May -
Before Open (7 Days)
3% 21.8% 2.52
TJX - Tjx Companies Inc
Wed 19 May -
Before Open (7 Days)
3% 2.5% 0.28
ADI - Analog Devices Inc
Wed 19 May -
Before Open (7 Days)
2% -6% 1.45

Notable Earnings Frequently Asked Questions

What are Earnings Announcements?

An earnings announcement details a company's performance over a given period, usually three months or a year. Upcoming earnings announcements are some of the most awaited reports as they help paint a clear picture of a company’s performance prospects.

The announcement can be made after the markets close or before the markets open but on a specific date communicated to shareholders in advance. Earnings reports upcoming often cause some stocks' share price to increase up to and slightly after the earnings are released.

Days leading to an earnings report, the market is usually filled with speculation among investors and analysts' estimates on how a company is likely to perform. Likewise, earnings reports must come with accurate, detailed information as they are official statements of a company's profitability that investors rely on to make informed investment decisions.

While analysts' estimates of the upcoming earnings report can be off the mark, they can be accurate at times.

What are notable earnings?

Notable earnings today is a saying used to denote important earnings reports likely to trigger significant market movements. In most cases, notable earnings are those of market leaders whose outcomes often paint a picture of how other companies are likely to perform.

Tech stocks earnings reports are some of the most waited as they tend to influence trading activities in the vast capital markets. Likewise, utility companies' earnings also paint a clear picture of how an economy is performing and likely to perform in the future.

Notable earnings reports tend to trigger wild swings conversely, resulting in unique trading opportunities that investors look to profit from during the short earnings sessions. Some of the biggest media outlets in the business sphere are known to list notable earnings today that investors should pay close attention to during the week or the day.

What are notable earnings very important?

Notable upcoming earnings are important given the trading opportunities they often give rise to. Such reports generate opportunities for buying stocks in case of earnings beat or act as a signal to trim or exit some positions in case of disappointing reports.

Likewise, investors pay close watch to notable earnings calendar to be in the know of potential market-moving earnings report worth trading.

What parameters to monitor in earnings reports?

While earnings reports present a rosy picture of a companies' financial position, it is important to know the parameters to watch out for and their potential impact on the share price. Revenues and earnings per share are crucial. It is important to determine whether earnings and revenues topped guidance and beat estimates. The variance in most cases determines how the stock would behave.

In addition, it is important to compare current and previous guidance as it paints a clear picture of how a company is likely to perform. Guidance can have a significant impact on the performance of a stock over the long term.

Similarly, it is important to monitor the balance sheet as it provides a clear picture of the company's underlying health. Cash flow is another important metric to pay attention to as it shows how a company is managing its cash.

Should you trade Pre-Earnings or Into-Earnings, or After-Earnings?

Buying a stock into earnings can be good or somewhere in between as it is difficult to know whether the company’s earnings will beat estimates or come out disappointing. When it comes to trade earnings, it is advisable only to buy pre-earnings if developments heading into the earning season point to potential solid earnings report.

Buying a stock into earnings amounts to speculating on how the company is likely to perform. While the bet can pay off in case of an earnings beat, the outcome can be disastrous in case of disappointing results.

When it comes to trading earnings season, it is best to wait until a company reports its earnings and the market digest the same. Even if the stock was to gap up powerfully, there will always be a pullback that would present an ideal entry point after an impressive earnings report.

Predicted Move (Volatility)

Predicted Move (Volatility) Similar to Implied Volatility in Options. The predicted move (volatility) % is based on our proprietary Volatility Prediction Model. We are expecting that stock price may likely move % in either direction by the end of the next regular trading session in Earnings reaction. The move may not necessarily be the closing volatility %.

Why is it Important?

  1. Knowing expected volatility in stocks in Earnings reaction helps in deciding whether to trade stocks or not prior to Earnings announcement.
  2. Taking advantage of volatility collapse following Earnings results by using Options strategies such as Spread and Straddle

% 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.

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