2:50 p.m. New York time
I entered a position on KR timed to coincide with earnings. I analyzed PAY but declined to take the trade.
Live: Wednesday, Sept. 6, 2017
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.
Live: Tuesday, Sept. 5, 2017
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.
The Week Ahead: Short week, global trade, Beige Book, Fedsters swarm
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.
Live: Friday, Sept. 1, 2017
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.
PANW Analysis
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.
LULU Analysis
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.
Live: Thursday, Aug. 31, 2017
DG Analysis
Dollar General Corp. (DG)
Updated 8/31/2017: DG fell about $6.50 after earnings were published and then recovered about $2 in the ensuing three hours of trading. It came very close to meeting expectations of $1.09 per share, coming in with an eps of $1.08.
Shares showed a net declined of 3.8% over my one-day holding period, o a -1,368% annual rate. Tye options position produced a 33.4% yield on debit for a +12,202% annual rate.
The stock’s move of $2.85 was well below the expected $4.25, which puts it in the same group as 85% of earnings announcements, statistically speaking.
The move was also less than DG has showed historically after earnings, coming in at about half the average, a fifth of the maximum, and a bit less than three-fourths of the central tendency.
Zacks Investment Research listed DG with an earnings surprise predictor score of -0.37, suggesting that there would be a small negative surprise. The beta is 0.93.
DG publishes earnings on Thursday before the opening bell.
I shall use options that trade for the last time nine days hence, on Sept. 8.
Implied volatility stands at 36%, which is 3.2 times the VIX, a measure of the volatility of the S&P 500 index.
DG’s IV stands in the 80th percentile of its annual range and at the peak of its most recent broad movement.
CTRP Analysis
Ctrip.com International Ltd. (CTRP)
Update 8/31/2017: CTRP’s stock price fell $3.70 after earnings were published, after earnings came it at double the consensus forecast. I exited for a loss.
Shares declined by 7.0% over one day, or a -2,558% annual rate. The options position produced a -28.85 loss for a -10,442% annual rate.
The movement after publication was nearly double the average and central tendency of movements following the last four earnings announcements, and just a bit below the maximum.
The Street estimate for earnings was $0.08 per share, and the actual eps was $0.17. Zacks Investment Research going into earnings gave CTRP an earnings surprise predictor score of 11.11, signifying a major earnings surprise to the upside, which indeed is what happened. The beta was 1.71.
The post-earnings movement, at $3.70, far beyond the expected movement $2.51, placing it in a category that in theory covers the response to only 15% of earnings announcements.
CTRP publishes earnings on Wednesday after the closing bell.
I shall use options that trade for the last time nine days hence, on Sept. 8.
Implied volatility stands at 35%, which is 3.1 times the VIX, a measure of the volatility of the S&P 500 index.
CTRP’s IV stands in the 75th percentile of its annual range and the 86th percentile of its most recent broad movement.
Tim Bovee, Private Trader 
You must be logged in to post a comment.