Trade Alert: Earnings, 11/30/2023

One bullish trade for today.

Results So Far This Week

Since I exited both of yesterday’s trades today (for gains of 39% and 106%, respectively), I have removed the paywall from yesterday’s trade alert.

We exited our previous two trades this week for gains of 66% and 78%, respectively.

Now on to our last trade for this week.

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 Stock 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 (4.4)

1. Social data: +44.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 3

4. Valuation rating: 5

5. F-Score: 9

6. Recent insider transaction(s): Net open market sales, peaking last December.

7. Zacks ESP: -0.39%

8. Zacks Ranking: 3

9. RSI: 70

10. Short Interest: 2.54%

Details below.

Bullish Trade #1

The stock is Ulta Beauty (ULTA 0.00%↑), and the trade is a vertical spread expiring on December 1st buying the $420 strike calls and selling the $425 strike calls for a net debit of $2.40. The max gain on 2 contracts is $520, the max loss is $480, and the break even is with ULTA at $422.40

Exiting This Trade

I’m going to place a GTC order to exit at about 95% of the spread and lower the price as necessary as we approach expiration.