Trade Alert: Earnings, 11/20/2023

Three bullish trades and one bearish trade using our updated factors.

Our Current Approach

Recall that we’re using these ten factors when evaluating 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 0-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Chartmill’s Valuation rating. On a scale of 0-10, this is a measure of fundamental valuation incorporating common rations like P/E, PEG, EBITDA/Enterprise Value, etc. For bullish trades, the higher the better the Valuation rating the better; for bearish trades, the reverse.

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

• Zacks Ranking. This goes from 1 to 5, with #1 ranked stocks being their most bullish ones. They grade on a bell curve, so most stocks we see end up with their #3 (neutral) ranking.

• 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.

• Short Interest.

And we’re keeping track of each metric on a range from very bearish to very bullish, and tracking them and their performance in a spreadsheet, a snippet of which is below.

And we’re using their relative outperformance or underperformance versus all of the stocks that we’ve analyzed to adjust our weightings of each metric to determine which stocks we should be bullish or bearish on ahead of earnings.

The Stocks We’re Bullish On

The number in parentheses represents our composite score for a stock, based on all the metrics: higher = more bullish, and lower (more negative) = more bearish.

Bullish Stock #1 (3.7)

1. Social data: +45.

2. PA Options sentiment: Bullish.

3. Setup rating: 8

4. Valuation rating: 7

5. F-Score: 6

6. Recent insider transaction(s): Small open market purchases in August and September; much bigger open market sales earlier in the year.

7. Zacks ESP: 2.33%

8. Zacks Ranking: 4

9. RSI: 62

10. Short Interest: 9.83%

Bullish Stock #2 (3.3)

1. Social data: +41.

2. PA Options sentiment: Bullish.

3. Setup rating: 7

4. Valuation rating: 3

5. F-Score: 8

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

7. Zacks ESP: 1.08%

8. Zacks Ranking: 3

9. RSI: 56

10. Short Interest: 2.73%

Bullish Stock #3 (3)

1. Social data: +31.

2. PA Options sentiment: Extremely Bullish.

3. Setup rating: 5

4. Valuation rating: 4

5. F-Score: 8

6. Recent insider transaction(s): Large open market sales in March.

7. Zacks ESP: 0.64%

8. Zacks Ranking: 3

9. RSI: 56

10. Short Interest: 4.31%

The Stock We’re Bearish On

Bearish Stock #1 (-0.7)

1. Social data: -25.

2. PA Options sentiment: Bearish.

3. Setup rating: 2

4. Valuation rating: 6

5. F-Score: 3

6. Recent insider transaction(s): Open market purchase in March.

7. Zacks ESP: -6.11%

8. Zacks Ranking: 3

9. RSI: 63

10. Short Interest: 23.54%

Details below.

Bullish Trade #1

The stock is Dick’s Sporting Goods (DKS 0.00%↑), and the trade is a vertical spread expiring on November 24th buying the $119 strike calls and selling the $120 strike calls for a net debit of $0.48. The max gain on 7 contracts is $364, the max loss is $336, and the break even is with DKS at $119.48. This trade hasn’t filled yet. This trade never filled.

Bullish Trade #2

The stock is BellRing Brands (BRBR 0.00%↑), and the trade is a vertical spread expiring on December 15th buying the $45 strike calls and selling the $47.50 strike calls for a net debit of $1.09. The max gain on 3 contracts is $423, the max loss is $327, and the break even is with BRBR at $46.09. This trade filled at $1.09.

Bullish Trade #3

The stock is Burlington Stores (BURL 0.00%↑), and the trade is a vertical spread expiring on November 24th buying the $136 calls and selling the $137 calls for a net debit of $0.45. The max gain on 7 contracts is $385, the max loss is $315, and the break even is with BURL at $136.45. This trade filled at $0.45.

Bearish Trade #1

The stock is Kohl’s (KSS 0.00%↑), and the trade is a vertical spread expiring on November 24th buying the $25.50 strike puts and selling the $24.50 strike puts for a net debit of $0.46. The max gain on 7 contracts is $378, the max loss is $322, and the break even is with KSS at $25.04. This trade hasn’t filled yet. This trade filled at $0.46.

Exiting These Trades

For each trade that fills, I’m going to place GTC orders to exit at about 90% of the spread and lower the price as necessary as we approach expiration.