At MarketChameleon.com, we provide a comprehensive 'Historical Stock Movements around Earnings' feature that allows traders to conduct an in-depth analysis of a specific stock's performance around earnings over the last 12 quarters. This powerful tool can reveal important trends and patterns, assisting in more informed trading decisions.
Stock Movements Around Earnings for AAPL
The feature is divided into three sections:
- 'Before Earnings': This section outlines how the stock performed in the lead up to earnings, offering a breakdown of the percentage moves two weeks, one week, three days, two days, and one day before the earnings announcement.
- 'Day of Earnings': This section provides detailed performance statistics for the day immediately following an earnings announcement, including the earnings move, the opening gap, the percentage move from the open to the high and low of the day, and the open to close 'drift'.
- 'After Earnings': This section reports the percentage performance one day, two days, three days, one week, and two weeks after the earnings announcement.
Summary Statistics
Each section provides summary statistics for each period and displays the simple average and frequency of positive and negative returns. For example, if 7 out of 12 two-weeks-before-earnings results were positive, the 'Pos Occurrences' would be 58%, and 'Neg Occurrences' would be 42%. This data helps to identify whether the frequency or magnitude of the moves were skewed in one direction.
The 'absolute returns' measure provides insights into the magnitude of moves in either direction, which can help to identify potentially undervalued straddle opportunities.
Lastly, the table shows the median return, Max Pos Return and Max Neg Return, which can highlight bias in returns or the presence of outliers.
Before Earnings
This section in our 'Historical Stock Movements around Earnings' feature on MarketChameleon.com provides a detailed look at how a specific stock has historically performed leading up to its earnings announcements. This data can be incredibly valuable for traders as they strategize around upcoming earnings events. Let's delve deeper into why this is important:
- Historical price movements before earnings: This feature breaks down the price behavior of the stock for various periods leading up to the earnings announcement, including 2 weeks, 1 week, 3 days, 2 days, and 1 day before the event. By analyzing these historical trends, traders can gain insights into the stock's usual behavior in the run-up to earnings. This can provide valuable context for assessing the potential range of price movements in the days leading up to the next earnings announcement.
- Pricing Options: For options traders, the 'Before Earnings' data can be used to price options more accurately. For example, if a stock tends to rise by an average of 4% in the two weeks before earnings, an options trader might use this information to price a call option. Similarly, if the stock has historically fallen in the week before earnings, a put option could be priced accordingly. This can provide options traders with an edge in pricing their options more accurately than the market.
- Anticipating Magnitude of Moves: The average returns, maximum positive/negative returns, and frequency of positive/negative moves can help traders gauge the typical magnitude and direction of price movements before earnings. This can be particularly useful when determining potential option strategy set-ups or when sizing trades to manage risk.
- Potential Directional Bias: If there's a consistent trend in the stock price leading up to earnings (such as the price generally increasing or decreasing), this could indicate a potential directional bias. Traders could use this information to inform their trading strategies – for instance, by taking a directional lean or hedging directional risk.
Potential Use Case Before Earnings
Suppose a trader is considering buying a straddle prior to an upcoming earnings release, hoping to benefit from an anticipated increase in the stock's volatility. This trader would be buying a call option and a put option at the current spot price and would like to evaluate whether this represents a good opportunity.
In this case, they could reference the 'Before Earnings' section on the website to examine the historical stock movement two weeks leading up to the earnings announcement.
Let's say the historical data shows that, on average, the stock has moved about 4.1% in either direction two weeks before earnings. This suggests that there is typically a decent amount of volatility in the stock ahead of earnings announcements.
Meanwhile, the current cost of the straddle that covers the earnings period is 3.9% of the stock's spot price.
Here's how this information could inform the trader's strategy:
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Anticipating Potential Profits: If the stock does its typical 4.1% move before the earnings release, the straddle may become profitable even before the actual earnings announcement. This is because if the stock moves more than the 3.9% straddle cost in either direction, one side of the straddle will become in-the-money, potentially offsetting the cost of the other side and yielding a net profit.
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Mitigating Potential Losses: If the stock doesn't make its typical move before earnings, the trader still might not lose the entire straddle premium. This is because the implied volatility of the options may increase as the earnings announcement approaches, which can cause the options premiums to rise. This could mitigate potential losses due to time decay in the straddle, as the increase in option premium could offset some or all of the time decay.
Day of Earnings
Historical Stock Movements around Earnings' feature on MarketChameleon.com provides crucial insights into how a particular stock has historically performed on the exact day an earnings announcement was made. This data can be extremely informative for traders seeking to strategize around earnings. Let's delve deeper into each of these stats and their potential significance:
- Earnings Move: This is the percentage change in the stock's price from the close of the previous day to the close of the earnings day. It's an important indicator of the market's reaction to the earnings announcement. Traders often look at this metric to gauge the potential impact of future earnings announcements on the stock's price.
- Opening Gap: This statistic represents the percentage change from the previous day's close to the opening price on the day of the earnings announcement. This often encapsulates the market's initial response to the earnings report, which can be quite telling about the market's expectations versus the actual earnings result. Traders may use this to assess the likelihood and potential magnitude of opening gaps in the future.
- Percent Move from Open to High and Open to Low: These statistics show the intraday range of the stock price on the earnings day, offering insights into the level of volatility during regular trading hours. A larger range might suggest more uncertainty or differing opinions among traders about the stock's value post-earnings.
- Open to Close (Drift): This measures the percentage move from the open to the close of the market on the earnings day. It can indicate whether the stock generally trends upward or downward after the market's initial reaction to the earnings release, potentially offering clues about post-earnings price direction.
By analyzing these statistics, traders can identify historical trends in a stock's earnings day performance. This could include understanding whether the stock typically experiences a price jump or dip after earnings, how volatile the stock is on earnings day, and whether there are any noticeable patterns in intraday trading following an earnings release.
This feature is particularly useful to options traders who need to price options ahead of earnings. They can utilize the data on intraday ranges and volatility during regular trading hours on the day of earnings to detect historical skew tendencies. Additionally, the data on the stock's performance in the days after earnings are displayed that can offer insights into buying or selling tendencies.
Potential Use Case Day of Earnings
A potential use case for the 'Day of Earnings' statistics for a trader considering selling a one-day straddle post-earnings release. The idea is that the trader wants to profit from a decline in option premium following the earnings announcement, and plans to sell a call option and a put option (creating a straddle) at the current spot price. Let's say that the total premium collected from this straddle is 0.75% of the stock's spot price.
To analyze this strategy, the trader can reference the 'Day of Earnings' section on MarketChameleon.com. Here they can find data on how the stock has historically moved intraday on earnings days.
Let's assume that historically, the average move from open to close on earnings day has been 1%, the average move to the high of the day has been 2.6%, and the average move to the low of the day has been -1.5%.
Here's how this information can impact the trader's strategy:
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Assessing Risk/Reward: If the trader sells the straddle for a 0.75% premium, they'd start losing money if the stock moves more than 1% in either direction. Given that the average intraday move (from open to close) has historically been 1%, this suggests that there's a significant risk that the straddle could end up in the money, causing the trader to incur a loss. The trader might decide to wait for a higher premium before selling the straddle, or accept this risk, knowing that the historical data indicates that such large moves are typical.
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Establishing Profit Targets: If the trader decides to buy the straddle, they could use the historical data to establish profit targets. For example, if the stock tends to move up to 2.6% to the high and -1.5% to the low on earnings days, the traders might decide to lock in their profits at these levels.
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Anticipating Intraday Volatility: Knowing that the stock can move an average of 1% from the open to the close, 2.6% to the high, and -1.5% to the low, helps the trader anticipate potential intraday volatility. This can assist them in managing the position throughout the day, such as setting targets or preparing to adjust the position if necessary.
After Earnings
The 'After Earnings' section in MarketChameleon.com provides traders with insights about how a particular stock has performed following its earnings announcements. This data can be particularly useful for traders who are trying to price options and formulate strategies for the post-earnings period.
Let's delve deeper into the mechanics of this and illustrate a potential use case:
Following an earnings announcement, it's common for implied volatility in options to decrease. This is often referred to as "volatility crush", reflecting that the uncertainty around the earnings report has been resolved. As a result, options premiums can decline, which could potentially undervalue the price of straddles if the stock continues to be volatile post-earnings.
For instance, a trader might believe that the post-earnings volatility crush has been overdone and that a straddle position extending two weeks out from the earnings announcement is underpriced. Let's say the straddle is priced at a premium of 3% of the stock's spot price.
The trader can then reference the 'After Earnings' data on MarketChameleon.com to assess the validity of this view. Suppose the data shows that, on average, the stock has moved about 3.8% in either direction in the two weeks following its earnings announcements. This average move is higher than the straddle premium, suggesting that the straddle could indeed be undervalued if the stock continues its historical pattern.
Comparing Periods for Additional Insights
The historical data provided by MarketChameleon.com's feature can certainly be used to compare returns over different periods. This can yield useful insights for trading strategies based on an investor's view of the stock.
Let's take a look at a hypothetical example of how a bullish trader might utilize this:
Imagine a trader has a positive outlook on a particular stock and expects it to rise following the earnings announcement. However, the trader isn't certain whether to buy the stock before the earnings announcement or to wait until the day of the announcement.
In this situation, the trader can refer to the historical data provided by MarketChameleon.com. Let's say the data shows that, on average, the stock has increased by 1.8% in the two weeks leading up to earnings announcements. On the day of the earnings release itself, however, the average increase has been just 1.6%.
From this data, it would appear that the more profitable play, on average, has been to hold the stock in the lead-up to the earnings announcement rather than waiting until the day of. This is because the pre-earnings period has shown a higher average return.
Furthermore, if the trader also compares the volatility around both periods, they might find that the risk/reward ratio for a bullish play is actually better in the pre-earnings period. For example, if the volatility or standard deviation of returns is lower in the pre-earnings period than on the earnings day, this suggests that the pre-earnings period has been less risky.
In this case, the trader might decide to buy the stock two weeks ahead of the earnings announcement, banking on the historical pattern to repeat itself. This decision would be based on the assumption that the stock will continue to behave as it has in the past, which, of course, isn't guaranteed.
Note:
It's important to note that historical data does not guarantee future performance. Traders should also consider other factors such as the current market conditions, recent news, and their personal risk tolerance when developing their trading strategies. However, historical analysis can provide important insights and serve as a useful tool for informed decision-making.
As always, the trader should take into account that past performance is not indicative of future results, and they should factor in other considerations such as current market conditions, recent news events, and their personal risk tolerance before deciding to implement this strategy.
