Trade Alert: Earnings, 10/25/2023

Three bullish trades and two bearish trades on companies reporting after the close today or before the open tomorrow.

Yesterday’s Winner

Yesterday’s earnings trade was a call spread on Microsoft (MSFT 0.00%↑), which we just exited for a 114% gain today.

Today’s Earnings Trades

Recall we are looking at seven different metrics for earnings trades:

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.

• Portfolio Armor’s gauge of options market sentiment.

• Chartmill’s Setup rating. On a scale of 1-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.

• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.

• Recent insider transactions.

• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold. We’re looking for RSI levels below 70 for bullish trades and above 30 for bearish ones.

None of these metrics alone are dispositive, but we’ll consider the preponderance of evidence when placing our bets. Based on last week’s results, I had been giving a bit more weighting to Zacks ESP and RSI this week.

On to today’s stocks. We’ve got trades on five reporting after the close today or before the open tomorrow.

The Stocks We’re Bullish On

Bullish Stock #1

1. Social data: +79.

2. PA Options sentiment: Moderately bullish.

3. Setup rating: 6

4. Zacks ESP: 1.15%

5. F-Score: 5

6. Recent insider transaction(s): Open market sales in July and August.

7. RSI: 42

Bullish Stock #2

1. Social data: +62.

2. PA Options sentiment: Bullish.

3. Setup rating: 6

4. Zacks ESP: 1.68%

5. F-Score: 7

6. Recent insider transaction(s): Open market sale in February, open market purchase in July

7. RSI: 33

Bullish Stock #3

1. Social data: +44.

2. PA Options sentiment: Bearish.

3. Setup rating: 3

4. Zacks ESP: 9.73%

5. F-Score: 6

6. Recent insider transaction(s): Open market sale in May.

7. RSI: 25

8. Short interest: 12%

Bearish Stock #1

1. Social data: -23.

2. PA Options sentiment: Neutral.

3. Setup rating: 4

4. Zacks ESP: 0% (Neutral)

5. F-Score: 3

6. Recent insider transaction(s): Open market sales in 5 of the last 10 months.

7. RSI: 38

Bearish Stock #2

1. Social data: -29.

2. PA Options sentiment: Neutral.

3. Setup rating: 8

4. Zacks ESP: -5.47%

5. F-Score: 5

6. Recent insider transaction(s): Open market sales in February and March.

7. RSI: 41

Details below.

Bullish Trade #1

The stock is Mattel (MAT 0.00%↑), and the trade is a vertical spread expiring on October 27th buying the $20.50 strike calls and selling the $21.50 strike calls for a net debit of $0.35. The max gain on 10 contracts is $650, the max loss is $350, and the break even is with MAT at $20.85.

Bullish Trade #2

The stock is Harley-Davidson (HOG 0.00%↑), and the trade is a vertical spread expiring on October 27th buying the $30 strike calls and selling the $31 strike calls for a net debit of $0.35. The max gain on 10 contracts is $650, the max loss is $350, and the break even is with HOG at $30.35.

Bullish Trade #3

The stock is Hertz Global Holdings (HTZ 0.00%↑), and the trade is buying the $10 strike calls expiring on November 17th for $0.92. The max gain on 3 contracts is unlimited, the max loss is $276, and the break even is with HTZ at $10.92.

Bearish Trade #1

The stock is Netgear (NTGR 0.00%↑), and the trade is a vertical spread expiring on November 17th buying the $11 strike puts and selling the $10 strike puts for a net debit of $0.42. The max gain on 8 contracts is $464, the max loss is $336, and the break even is with NTGR at $10.58. This trade hasn’t filled yet. This trade never filled.

Bearish Trade #2

The stock is Churchill Downs (CHDN 0.00%↑), and the trade is a vertical spread expiring on November 17th buying the $110 strike puts and selling the $105 strike puts for a net debit of $1.80. The max gain on 2 contracts is $640, the max loss is $360, and the break even is with CHDN at $108.20. This trade hasn’t filled yet. This trade never filled.

Exiting These Trades

For the HTZ calls, I’ll see what the stock does after earnings. For the other trades, I’m going to set GTC orders to exit at 90% of the spreads. In all cases, I’ll lower prices if necessary as we approach expiration.