9/8 – 3:15 p.m. New York time
One trade today: I exited KR for a profit. In terms of evaluating the analysis, the net step is to see what happens to the price on Monday. KR on the second trading day after the four previous earnings announcements showed large moves. I exited early and under target to avoid such a move. I’m interested to see if in fact a large Day 2 move happens for a fifth time.
VeriFone Systems Inc. (PAY)
PAY publishes earnings on Thursday after the closing bell.
I shall use options that trade for the last time eight days hence, on Sept. 15.
Implied volatility stands at 48%, which is 4.1 times the VIX, a measure of the volatility of the S&P 500 index.
PAY’s IV stands in the 62nd percentile of its annual range and at the peak percentile of its most recent broad movement.
The Kroger Co. (KR)
Update 9/8/2017: KR came in 1 cent higher that the Street’s consensus earnings estimate, consistent with the small earnings surprise predictor score of 0.96 from Zacks Investment Research.
Shares fell $1.42 at the open, remaining within the profit zone and consistent with the low beta. In my preliminary analysis I noted that KR tended to see large moves on the second trading day after earnings were published. Rather than risk a loss, I exited at 14.7% of maximum potential profit, below my target of 25%.
The price move was within the bounds observed after the last four earnings announcements, including the $1.23 central tendency move, the narrowest of the metrics.
The price fall, despite the positive earnings surprise, coincided with Zacks’ negative view; the Zacks score is a bearish 4.
For the one-day holding period of my position, shares fell by 4.9%, or a -1,801% annual rate. Tye options position produced a 17.2% return for a +6,293% annual rate.
KR publishes earnings on Friday before the opening bell.
I shall use options that trade for the last time eight days hence, on Sept. 15.
Implied volatility stands at 45%, which is 3.8 times the VIX, a measure of the volatility of the S&P 500 index.
KR’s IV stands at the peak percentile of both its annual range and its most recent broad movement.
9/6 – 3:10 p.m. New York time
As I anticipated last night, none of the possibleearnings plays that turned up under my preliminary screening are worth a full analysis, and I found nothing else worth trading.
The two possibilities — I won’t dignify them as prospects — are HDS and HPE.
Both have grids that center poorly around the at-the-money point, making it difficult to use my preferred iron fly tactic, and both have betas noticeably in excess of the S&P 500. In addition, HDS has high earnings surprise predictor score from Zacks Investment Research. All in all, both look to have a somewhat high likelihood of ending with a loss.
9/5 – 7:45 a.m. New York time
I’m passing on both of my potential trades today without further analysis.
HDS fails to qualify because of a significant chance of a downside earnings surprise (score -1.25 on the Zacks Investment Research earnings surprise predictor) and a beta of 1.4. I prefer to have both within a -1 to 1 range.
HPE fails primarily because of its grid, which is too widely spaced spaced to allow me to construct a proper iron fly position. The deltas on the calls surrounding the at-the-money point are 55 and 25 — a huge gap. Although HPE’s earnings surprise predictor score of -0.87 meets my standards, it’s beta of 2.71 is way too high for me to consider.
Bottom line: No trades today, leaving me free to contemplate the ash falling on my beautiful city of Portland from forest fires in the Columbia River Gorge. Honestly, I’d rather be trading.
A shortened week after a major holiday which is also the week after the employment report. Econ reporting doesn’t get much more inactive than that.
U.S. markets will be closed on Monday for the Labor Day holiday. The other global hubs — London, Tokyo and Sydney — will be open as usual.
One major report is scheduled for the week: International trade on Wednesday at 8:30 a.m. New York time.
And as though to make up for the reporting doldrums, the Federal Reserve releases its “Beige Book”, a description of economic conditions in each of the agency’s districts, on Wednesday at 2 p.m., while aswarm of the Fed glitterati provide commentary on the state of the nation.
9/1 – 1:45 p.m. New York time
My trading for the day is complete. I exited LULU for a profit.
U.S. markets are closed on Monday for the Labor Day holiday and will re-open at the usual time on Tuesday.
Palo Alto Networks Inc. (PANW)
Update 9/1/2017: My passing on PANW proved to be right decision. The price opened up $12.12 after earnings were published. The opening price, $144.81, was below the upper break-even boundary, but the price rose above it in the second five-minute period after the opening bell and continued to rise. At no point did the position reach my exit point, which is 25% of maximum potential profit.
So, taking the opening price of the second 5-minute period, $143.80, as my theoretical exit, here are the stats:
At exit the price was up $10.55 above the price at analysis, slightly greater than the expected movement. The post-earnings move was much narrower than PANW’s has been in the past, at a ratio of 0.5 of both the average and central tendency after that last four announcements, and 0.2 of the maximum.
Earnings exceed the consensus estimate of $0.81 by 11 cents, coming in at $0.92. Zacks earnings surprise predictor had suggested a very slight chance of a negative earnings surprise, with a -0.06 score. That proved not to be the case.
All in all, I think the figures suggested that I made the right decision in not taking the trade. The beta was my primary reason for making that decision, and I shall continue to use that indicator as a guide, seeking out low beta high implied volatility trades.
PANW publishes earnings on Thursday after the closing bell.
I shall use options that trade for the last time eight days hence, on Sept. 8.
Implied volatility stands at 48%, which is 4.5 times the VIX, a measure of the volatility of the S&P 500 index.
PANW’s IV stands in the 84th percentile of both its annual range and its most recent broad movement.
Lululemon Athletica Inc. (LULU)
Update 9/1/2017: LULU’s earnings bettered the consensus estimate of $0.37 per share by two cents, coming in at $0.39 per share. I exited for a profit at 25.1% of maximum potential profit.
Shares rose by 6.5% over my one-day holding period, or a +2,370% annual rate. The options position produced a +33.5% return for a +12,224% annual rate.
The price was $61.22, up $3.65, at the opening bell after earnings were published. That is greater than the expected move of $5.23 but within the $7.23 beak-even width. I exited at $61.16 for a $4.21 debit. Analyst data had suggested a chance of a small earnings surprise, and so it proved to be.
The movement was a ratio of 0.4 of the average and central tendency movements of the last four earnings announcements, and 0.2 of the maximum. This is consistent with LULU’s low beta of 0.25.
LULU publishes earnings on Thursday after the closing bell.
I shall use options that trade for the last time eight days hence, on Sept. 8.
Implied volatility stands at 58%, which is 5.4 times the VIX, a measure of the volatility of the S&P 500 index.
LULU’s IV stands in the 97th percentile of its annual range and at the peak of its most recent broad movement.
Tim Bovee, Private Trader 
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