Shares trades in connection with earnings announcements: WLK, LGIH and CORE.
Author: Tim Bovee
Shares: Thursday, November 2, 2017
Shares trades in connection with earnings announcements: MSG.
Earnings plays using shares
I’m adding a new approach to my options-based trades: Playing earnings announcements using shares. It’s an extension of my use of Zacks earnings surprise predictor to encompass a greater pool of stocks than is available using options.
CVS Analysis
CVS Health Corp. (CVS)
CVS publishes earnings on Monday before the opening bell.
I shall use options that trade for the last time 14 days hence, on Nov. 17.
Implied volatility stands at 38%, which is 4.1 times the VIX, a measure of the volatility of the S&P 500 index.
CVS’s IV stands in the 88th percentile of its annual range and the 87th percentile of its most recent broad movement.
Live: Friday, November 3, 2017
11/3 – 6:50 p.m. New York time
ATVI updated with session close analysis.
11/3 – 3:20 p.m. New York time
I analyzed CVS as a potential earnings play but passed on it., exited ATVI for a profit, and entered share positions keyed to earnings on WLK, LGIH and CORE.
ATVI Analysis
Activision Blizzard Inc. (ATVI)
Update 11/3/2017: ATVI’s earnings were $0.47 per share, down 12.96% from the consensus estimate of $0.54. Shares rose more than $3 in overnight trading and then, with the opening bell, fell to more than $5 below that peak in the first half hour of trading. I exited shortly after the opening bell, for 6% of maximum potential profit.
The actuality was the opposite of the outcome suggested by Zacks‘ algorithms, which was bullish on ATVI for the longer term and produced an earnings surprise score of 4.61%.
ATVI closed the post-earns session $2.25 below the prior session close, narrower than the downside profit zone of $2.86. The actual post-earns movement over the past year on average was greater, at $2.97, although the central tendency fit within the profit zone, at $1.82.
Shares declined by 1.1% over my holding period of less than a day, or a -397% annual rate. The options position produced a +6.4% return for a +2,330% annual rate.
ATVI publishes earnings on Thursday after the closing bell.
I shall use options that trade for the last time 15 days hence, on Nov.. 17.
Implied volatility stands at 38%, which is 3.8 times the VIX, a measure of the volatility of the S&P 500 index.
ATVI’s IV stands in the 75th percentile of its annual range and the 90th percentile of its most recent broad movement.
Live: Thursday, November 2, 2017
BABA Analysis
Alibaba Group Holding Ltd. (BABA)
Update 11/2/2017: BABA reported earnings of $1.30 per share, 14.9% higher than the Street estimate of $1.11. Shares rose to $5.14 above the prior day’s close and then declined. I exited early while the trade was still profitable, at 55.0% of maximum potential profit, well above my target.
Prior to the earnings announcement Zacks calculated a 2.1 earnings surprise prediction for BABA with neutral expectations for the longer term and a high beta of 2.60.
BABA closed the first session after earnings down $1.27, smaller than the maximum or average moves of the past year, and also than the central tendency.. In terms of assessing the trade, the fact that a strong rise after the announcement turned into a decline shows it have been a risky play: The early bird gets the worm, as the old cliche goes, since only those who exited in the first two hours of trading would have cashed out above the prior session’s close.
Shares rose by 2.0% over my one-day holding period, or a +723% annual rate. The options position produced a 122.2% return for a +44,611% annual rate.
BABA publishes earnings on Thursday before the opening bell.
I shall use options that trade for the last time 16 days hence, on Nov.. 17.
Implied volatility stands at 39%, which is 3.9 times the VIX, a measure of the volatility of the S&P 500 index.
BABA’s IV stands in the 92nd percentile of its annual range and the 91st percentile of its most recent broad movement.
Live: Wednesday, November 1, 2017
X Analysis
United States Steel Corp. (X)
Update 11/1/2017: A announced a 24.0% earnings surprise. The Street estimate was $0.74 per share; the announced earnings were $0.92 per share. Shares gapped up $2.53 at the opening bell, rose another $2 and then declined. I exited early at 71.4% of maximum potential profit, nearly triple my target.
Zacks‘ earnings surprise predictor algorithm anticipated the earnings surprise, producing a 5.97 score in the context of neutral expectations. X also has a high beta of 2.89, nearly triple the movement rate of the S&P 500.
X closed up $1.98 during the first trading session after earnings were published, well below the maximum move of $8.33 during the past year and the average move of $3.09, but greater than the central tendency of $1.57.
Shares rose by +10.0% during my one-day holding period, or a +3,638% annual rate. The options position produced a 250.0% return for a +91,250% annual rate.
X publishes earnings on Tuesday after the closing bell.
I shall use options that trade for the last time 17 days hence, on Nov.. 17.
Implied volatility stands at 61%, which is 5.9 times the VIX, a measure of the volatility of the S&P 500 index.
X’s IV stands in the 58th percentile of its annual range and at the peak of its most recent broad movement.
Tim Bovee, Private Trader 
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