I have entered an earnings play on PAY using long shares as a vehicle.
Although PAY beat the Street consensus earnings estimate, the company provided forward outlook that resulted in a price decline immediately after the opening bell.
| sym | entry | exit | result ($) | result (%) | entry date | exit date |
| PAY | 18.53 | 17.39 | -1.14 | -6.2% | 12/12 | 12/13 |
| zacks rank | zacks esp | DI spread | ADX | earns est. | earns actual | |
| 3 | 0.58 | 6.13 | 34.74 | 0.43 | 0.44 |
By Tim Bovee, Portland, Oregon, Dec. 12, 2017
12/12 – 3 p.m. New York time
In today’s outcomes, I entered one new position, a shares position in PAY, and exited none.
12/11 – 3:10 p.m. New York time
As it turns out RMR is unsupported by Robinhood, the no-fee brokerage I use for earnings plays using shares. No, no trade, and that means no outcomes today.
The Federal Open Market Committee completes a two-day meeting on Wednesday with an announcement and forecasts at 2 p.m. New York time and a news conference with Fed Chair Janet Yellen at 2:30 p.m.
Yellen’s term ends Feb. 3, when she will be replaced by the present Fed Gov. Jerome Powell. The FOMC last raised its target federal funds rate on June 15, by 25 basis points to the $1.00 to $1.25 range. So far there have been four increases in the post-recession period, beginning Dec. 17, 2015 from the recession low of $0.00 to $0.25.
The morning before Wednesday’s FOMC announcement, the latest consumer price index numbers will be published at 8:30 a.m. Another set of price statistics, the producer price index final demand report, will be released on Tuesday at 8:30 a.m.
Two other high-visibility reports hit the Street’s consciousness during the week: Retail sales on Thursday at 8:30 a.m. and industrial production on Friday at 10:15 a.m.
Friday is a quadruple witching day in the markets, when stock options, stock market index futures and options, and single-stock futures all expire together, between 3 p.m. and 4 p.m.
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12/8 – 2:10 p.m. New York time
With nothing in sight, I am shutting down early today, In outcomes, I performed no analyses, placed no trades and exited no positions. I completed my initial screening for next week and discussed it in this post, below.
Lululemon Athletica Inc. (LULU)
Update 12/7/2017: LULU’s earnings beat the Street by 7.7%, and the share price jumped up nearly $5 in one minute of overnight trading. Throughout the regular trading session prices fluctuated at the higher level. I exited during the regular session at 14.0% of maximum potential profit.
Shares rose by 6.5% over my holding period of less than a day, or a +2,366% annual rate. The options position produced a 16.3% return for a +5,961% annual rate.
Zacks earnings surprise predictor (ESP) pointed toward a positive earnings surprise, with a score of 0.65% in the context of a neutral (3) rank.
The trend going into the announcement wasn’t especially bullish, with a positive directional index (+DI) of 24.0 and a negative (-DI) of 18.4. In looking at the two DI metrics, I’m concerned most about the narrowness of the gap, considering wider to be more bullish. The average directional index (ADX), a measure of the strength of the trend, was 24.3 — I fudged my rules a bit, since I normally have a cut-off of 25.0.
From the pre-earnings close to the post-earnings close, the price rose by $4.35, less than the estimate, with an 85% expectation of accuracy, of $6.43 and well within the $5.00 profit zone.
The movement was also well within the metrics of the last four earnings announcements, with an average move of $8.58, a maximum of $15.54 and a central tendency of $17.31.
LULU publishes earnings on Wednesday after the closing bell.
I shall use options that trade for the last time nine days hence, on Dec. 15.
Implied volatility stands at 57%, which is 5.1 times the VIX, a measure of the volatility of the S&P 500 index.
LULU’s IV stands in the 88th percentile of its annual range and at the peak of its most recent broad movement.
Dollar General Corp. (DG)
Update 12/7/2017: DG’s earnings came in 1.1% below below expectations. The share price rose about $6 in overnight trading and then sank over hours back to where it had ended the prior today, before working its way up a bit until the closing bell. I exited early, during the most robust minutes of the fall, for a debit of $4.03, with shares at $93.77, for 14.3% of maximum potential profit.
The earnings announced were at odds with the Zacks earnings surprise predictor (ESP) algorithm that produced a positive score of 0.89 within the context of a bullish rank (2).
Shares rose by 3.% over my holding period of less than a day, or a +1,125% annual rate. The options position produced a 16.6% return for a +6,068% annual rate.
From the pre-earnings close to the post-earnings close, shares showed a net rise of $2.52, well within both the 85% confidence expected move of $6.43 and the profit zone of $4.50.
The trend metrics pointed toward a rising trend, with a positive directional index (+DI) of 37.2, a negative (-DI) of 12.3, and an average directional index (ADX) of 35.5.
The net move for the day was within the ranges of the last four post-earns moves, which averaged $3.30 with a maximum of $4.80 and a central tendency of $4.01.
DG publishes earnings on Thursday before the opening bell.
I shall use options that trade for the last time nine days hence, on Dec. 15.
Implied volatility stands at 32%, which is 2.9 times the VIX, a measure of the volatility of the S&P 500 index.
DG’s IV stands in the 59th percentile of both its annual range and tits most recent broad movement.
Broadcom Ltd. (AVGO)
Update 12/7/2017: AVGO beat the Street’s expectations by 2.2%.The price rose by nearly $20 in overnight trading but then fell during the day and eventually returned to its starting point. I exited early for a debit of $7.33, with shares at $2679.75, for 13.9% of maximum potential profit.
Zacks had anticipated a small earnings surprise, with an earnings surprise predictor (ESP) score of 0.45 in the context of a bullish rank (2).
The ephemeral upward move post-announcement was in line with the ambiguities of the trend, with a positive direction index (+DI) of 29.2, a negative (-DI) of 16.0 and a weak trend signified by an average directional index (ADX) of 18.4.
Shares rose by 3.3% over the position’s lifespan of less than a day, or a +1,203% annual rate. The options position produced a 16.0% return for a +5,826% annual rate.
The expected move with an 85% accuracy was $13.64, with a $10 profit zone. In actuality the stock closed the first trading day after earnings were published at precisely the same price as it had closed before the announcement.
The overnight swing exceeded post-earnings moves of the past year, which showed an average of $9.98, a maximum of $19.94 and a central tendency of $4.01. The close to close difference, of course, was well within those past ranges.
AVGO publishes earnings on Wednesday after the closing bell.
I shall use options that trade for the last time nine days hence, on Dec. 15.
Implied volatility stands at 38%, which is 3.4 times the VIX, a measure of the volatility of the S&P 500 index.
AVGO’s IV stands in the 81st percentile of its annual range and the 73rd percentile of its most recent broad movement.
Tim Bovee, Private Trader 
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