Earnings journal

[TheBigShort]

Short the 55 VRNT strike with everything you got!!! Allocated 10% of net liq to this trade.

 

[destriero]

Putas?

 

[TheBigShort]

Putas?

Straddle it! Company has already released all earnings info. Estimates are guided a bit high. Stock will drop a tad on a bit of over optimism.

 

[TheBigShort]

Implied move only came down a tad on information release. It's juicy af!

 

[TheBigShort]

Those lil buggers added another 5 mil to guidance just to make the stock pop. LOL. Looks like a small winner if it can hold below 60. Currently 59 after news.

There we go! Sub $58

 

[Magic]

I'll also save you some trouble with the implied move/ historical move spread. Sometimes stocks (especially stocks that don't have weeklies) have sticky vol. They tend to hold on to some residual implied vol for a day or 2 longer. This could seriously impact the "implied move" number you are using. I have decided to create something called "actual implied move" which uses a time series model (instead of term structure) to look at previous actual implied moves from the day before and day after the event. It's playing a bigger and bigger roll in my analysis.

Thanks! The nuances are very helpful. Appreciate your generosity with info and sharing your earnings trades in general.

 

[oldmonk]

TBS/oldmonk/srinir,

After having been at this a while, how would you guys rank the various data points in importance for delivering expectancy? There's been quite a few mentioned over the course of the journal. Implied move vs. historical obv seems foundational, but what would #2 and #3 be?

Trying to understand a feel for the important pieces needed to get the framework together, then work on iterative refinements later. What would you recommend focusing on first re: earnings trades?

A large implied vs historical jump is not really predictive of anything. It just says that the current implied jump is larger than historical jumps. This could be because the market is (justifiably) pricing in more uncertainty in the current earnings report. I agree with TBS that the implied vs historical move when viewed in isolation is not a very reliable metric for earnings trades. It worked great for me in Q1, but had mixed results in Q2. I'm now looking to trade only those stocks that have had the smallest observed/implied moves averaged over the past several quarters. The only other criteria I look at are stock price and option liquidity. I don't have the time or the patience to go through 10Ks and other financial documents for each stock, though there may be useful information in there as well.

 

[Adam777]

A large implied vs historical jump is not really predictive of anything. It just says that the current implied jump is larger than historical jumps. This could be because the market is (justifiably) pricing in more uncertainty in the current earnings report. I agree with TBS that the implied vs historical move when viewed in isolation is not a very reliable metric for earnings trades. It worked great for me in Q1, but had mixed results in Q2. I'm now looking to trade only those stocks that have had the smallest observed/implied moves averaged over the past several quarters. The only other criteria I look at are stock price and option liquidity. I don't have the time or the patience to go through 10Ks and other financial documents for each stock, though there may be useful information in there as well.

One big earnings website looks at: implied move > average actual move over the past 4 earnings; whereas another big website uses: Implied move > max actual move over the past 4 earnings ... but which is better?

 

[srinir]

TBS/oldmonk/srinir,

After having been at this a while, how would you guys rank the various data points in importance for delivering expectancy? There's been quite a few mentioned over the course of the journal. Implied move vs. historical obv seems foundational, but what would #2 and #3 be?

Trying to understand a feel for the important pieces needed to get the framework together, then work on iterative refinements later. What would you recommend focusing on first re: earnings trades?

I am no way accomplished as others here. Only reason I do earnings trade is because, it is source of return which is uncorrelated my other trades/holdings.

Only other thing I could add is to observe / measure recent reactions from stocks after earnings cumulatively. Each earnings cycle has mood of its own. Some earnings season, stocks tend to have outsize return for simple beats and worst reaction for simple misses and some seasons there won't be much move for the same result. If you could gauge the reactions beginning of the season and structure the trade you will have much better results.

Ya, I also look at the same implied/historical observations and add some seasonalities to it estimate the move and filter based on liquidity.

 

[oldmonk]

One big earnings website looks at: implied move > average actual move over the past 4 earnings; whereas another big website uses: Implied move > max actual move over the past 4 earnings ... but which is better?

Both metrics would be correlated to some extent, and the one that uses max actual move would give far fewer results. That said, both of them only use the current implied move, which has the problem I mentioned earlier. I now find it more useful (from backtests) to look at the observed/implied moves over the past several quarters. Basically we're trying to short vol on the stocks that tend to have the least surprises in their earnings reports. Also useful to look at the expected straddle value if the stock remains unchanged post earnings. That gives you an idea of your real R/R.