Ideas on different Earnings variables.

TheBigShort

TheBigShort

Hey guys, I am currently spending some time working on a web app that will help with trading earnings. I would greatly appreciate if you could comment down below some variables and or ideas you would like to see on it or have helped you with your earnings trades.
So far the variables of I have included in my data set are:

Implied Move
Historical Vol
Average Jump
Earning/Sales Surprise
# analyst covering the stock
Earnings/Sales Dispersion
Seasonality
Beta
Sector/Industry
Current Average Sector Move
Average Implied Move
Skew
Debt/Equity
P/FCF, P/B
ROE
Market Cap
VIX

I have a VERY rough sketch of the template. Thanks in advance for your ideas.
Screen Shot 2018-10-27 at 3.43.50 AM.png
 
I'd put in a ratio of Tobin's Q, to segregate the market into levels of earnings-surprise-likely versus earnings-surprise-not-so-likely. This (or some of your others -- like P/B) could really steer some insight as to a lot of the others (immediate IV, for example).

Good luck on this -- it sounds *very* interesting. :thumbsup::thumbsup::thumbsup:
 
srinir said:
Most of the fundamental factors prediction is for longer term move rather than earnings jump move which you are trying to predict.

It reminded me of one of my prof's work regarding "Earning torpedo". You can google "Sloan Ratio"

https://www.oldschoolvalue.com/blog/valuation-methods/how-to-beat-the-market-with-the-sloan-ratio/
More...
I have found that certain fundamentals change the distribution of earning moves. For example growth stocks (high price to book relative to ROE) have a ton more kurtosis in their distributions. There is also evidence that high debt to equity stocks get hurt more when they miss earnings.

I read the article, thanks for posting, are you using the sloan ratio for your longer term portfolio? You also posted you use ORATS for your data when trading earnings. Any certain ratios you like using for determining a buy/sell before earnings (both in vol sense or delta bets)?

I am thinking of adding a PCA feature that would help you price a Visa straddle given Mastercard/PayPal have their earnings tomorrow (might be some edge their).
tommcginnis said:
I'd put in a ratio of Tobin's Q, to segregate the market into levels of earnings-surprise-likely versus earnings-surprise-not-so-likely. This (or some of your others -- like P/B) could really steer some insight as to a lot of the others (immediate IV, for example).

Good luck on this -- it sounds *very* interesting. :thumbsup::thumbsup::thumbsup:
More...
thanks for your input tomm, I just looked up Tobin's Q ratio (never heard of it before), could you explain why this ratio would have some predictive power on whether the company will surprise or not?
 
TheBigShort said:
I have found that certain fundamentals change the distribution of earning moves. For example growth stocks (high price to book relative to ROE) have a ton more kurtosis in their distributions. There is also evidence that high debt to equity stocks get hurt more when they miss earnings.

I read the article, thanks for posting, are you using the sloan ratio for your longer term portfolio? You also posted you use ORATS for your data when trading earnings. Any certain ratios you like using for determining a buy/sell before earnings (both in vol sense or delta bets)?

I am thinking of adding a PCA feature that would help you price a Visa straddle given Mastercard/PayPal have their earnings tomorrow (might be some edge their).

thanks for your input tomm, I just looked up Tobin's Q ratio (never heard of it before), could you explain why this ratio would have some predictive power on whether the company will surprise or not?
More...

I took the course under Richard Sloan "Financial Statement Analysis and Valuation". As part of the course, we were supposed to pitch the idea long short portfolio of stocks to investment committee and manage thin slice of university trust fund. It was while back we used that along with typical value ratio's, we had very good results.

Since I don't invest in any single stocks now, I don't have to worry about that.

Regarding ORATs, nothing systematic. Since I am a private trader/investor allocating capital to high variance results is a big issue for me. I place trade mainly looking at Expected move from my calculation and his previous expected move avg. and other historical moves. When the difference is more than 0.5% of notional, I try to place the trades. This quarter I have relatively good results. PNC was a huge winner
 
srinir said:
Since I am a private trader/investor allocating capital to high variance results is a big issue for me. I place trade mainly looking at Expected move from my calculation and his previous expected move avg. and other historical moves. When the difference is more than 0.5% of notional, I try to place the trades. This quarter I have relatively good results. PNC was a huge winner
More...

Are you mostly long gamma going into earnings? I have found that long gamma trades across earnings are very rare, except this quarter I have noticed a few popping up on my radar. In fact this week, I want to be long gamma in a few names. Any names on your radar right now?
 
srinir said:
I took the course under Richard Sloan "Financial Statement Analysis and Valuation". As part of the course, we were supposed to pitch the idea long short portfolio of stocks to investment committee and manage thin slice of university trust fund. It was while back we used that along with typical value ratio's, we had very good results.

Since I don't invest in any single stocks now, I don't have to worry about that.

Regarding ORATs, nothing systematic. Since I am a private trader/investor allocating capital to high variance results is a big issue for me. I place trade mainly looking at Expected move from my calculation and his previous expected move avg. and other historical moves. When the difference is more than 0.5% of notional, I try to place the trades. This quarter I have relatively good results. PNC was a huge winner
More...

What are ORATs?
 
TheBigShort said:
Are you mostly long gamma going into earnings? I have found that long gamma trades across earnings are very rare, except this quarter I have noticed a few popping up on my radar. In fact this week, I want to be long gamma in a few names. Any names on your radar right now?
More...

No, I trade both long and short sides.

This cycle long side profitable trades were C,PNC,URI, AA lost on NVS
On short side profitable were FAST, CSX, GS, ADS, NUE, NVS, PPG and lost on BAC, BLK, MS, OMC, SAP

Did not trade earnings much last week because things were interesting on SPX side and did not want to add more risk.

Just looked at tomorrow earnings. YNDX early tomorrow. I would have gone short straddle, if I had looked last week. VNO on short side looks interesting tomorrow evening and SANM on long side. Both doesn't have weekly options (which i prefer). I might do small trades on these. I will post it if i get filled.
 
https://en.wikipedia.org/wiki/Tobin's_q
In a phrase, "What does management bring?"
If higher, the market price indicates an over-the-average faith in the management over time.
If 1.0, "nothing special."
If lower, "it's time to go."
I have not done a study, but I would bet that there is a positive correlation between higher Tobin's Q and surprises than lower Q and surprises -- the difference being the market's evaluation of what management brings to that company, at that time.
 
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