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Jared looks at what to expect, statistically speaking, after this week’s earnings reports
Jared Levy worked as a stock broker and market maker at three major U.S. exchanges and as a specialist for Fortune 1000 companies. He won an Emmy for his Wizetrade daily trader-cast videos. Options traders base many of their trades on probability and statistics as opposed to just buying a stock or index because we “find the value attractive.” Similar to the way you might follow your favorite sports teams’ statistics and behavior in different situations, we do the same with stocks. This may seem like a bad analogy, but remember the market is a representation of human emotion, much of which is repeated over and over again, which is one of the reasons many traders follow technical analysis.
Earnings and the subsequent movements in a stock are the public’s reactions to the news releases and may or may not change the future outlook of that company’s stock price. Current P/E ratios often trade at a premium to their typical ratio in a recovery cycle, because the markets are always looking forward, typically somewhere 3 to 9 months ahead, depending on the overall economic and geo-political situation.
When options traders are placing trades, we not only look to the future expectations of stocks, but also examine how a stock tends to behave in certain situations. I wanted to offer a look-back into some of the average earnings behaviors of companies that are reporting earnings this week, so you can get a realistic handle on the possible movement of these companies as they report.
The percentages that are displayed below are the average effective moves these stocks have seen the day of earnings, looking back over the past 11 or so earnings reports. Direction is not important here. Remember that some issues are volatile going into their reports, while others do nothing, so do your homework before making trades based on this data. This type of data can be especially useful if you are a spread trader or if you are wondering how much protection you may need going into an earnings report.
Monday :
Alcoa (NYSE: AA) – 3% ( Alcoa also tends to continue to move in the days following the report)
Tuesday:
K.B. Homes (NYSE: KBH) – 4.8%
SuperValu (NYSE: SVU) – 7.25%
Thursday:
Intel (NASDAQ: INTC) – 1.75% (Intel tends to make its moves the following day, with those movements coming in at a little over 5%)
Friday:
J.P. Morgan (NYSE: JPM) – 4.75%
Two Traders, One Strategy Steve and Jared take a look at risk management strategies on the OH platform.
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