Trade Alert: Earnings, 11/6/2023

Two bullish trades and one bearish trade, drawing on analysis of last week's data.

Analyzing Last Week’s Data

Recall that these are the nine metrics we’ve been looking 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 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.

• 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 what we started doing last week was assigning a numerical figure for each metric (2 for very bullish, 1 for bullish, 0 for neutral, -1 for bearish, and -2 for very bearish), and then adding them up to a composite score for each stock.

Over the weekend, I went through the dozens of stocks we analyzed last week, and sorted them by each metric to at each of those five numerical levels (from -2 to +2) to see how each one impacted subsequent performance. Then I adjusted those weightings accordingly. So for example, if the average stock in our sample was up 10% last week, and the average stock that got a “very bullish” for a particular metric was up 13%, then this week we boost “very bullish” stocks for that metric by 1.3x.

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 (4.4)

1. Social data: +37.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 6

6. Recent insider transaction(s): Open market sales every month this year, peaking in August.

7. Zacks ESP: 0% (Neutral) but also a Zacks #1 name.

8. RSI: 42

9. Short Interest: 3.41%

Bullish Stock #2 (9.6)

1. Social data: +60.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 3

4. Valuation rating: 7

5. F-Score: 6

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

7. Zacks ESP: 0% (Neutral), but a Zacks #1 stock.

8. RSI: 54

9. Short Interest: 10%

The Stock We’re Bearish On

Bearish Stock #1 (-4.8)

1. Social data: -21.

2. PA Options sentiment: Neutral.

3. Setup rating: 2

4. Valuation rating: 3

5. F-Score: 6

6. Recent insider transaction(s): Open market sales, last in July, none since.

7. Zacks ESP: 1.41%. (Also, a Zacks #2 stock)

8. RSI: 60

9. Short Interest: 7.86%

Details below.

Bullish Trade #1

The company is Datadog (DDOG 0.00%↑), and the trade is a vertical spread expiring on November 10th buying the $84 strike calls and selling the $85 strike calls for a net debit of $0.40. The max gain on 9 contracts is $540, the max loss is $360, and the break even is with DDOG at $84.40. This trade filled at $0.40.

Bullish Trade #2

The company is Trip Advisor (TRIP 0.00%↑), and the trade is a vertical spread expiring on November 10th buying the $16 strike calls and selling the $17 strike calls for a net debit of $0.38. The max gain on 9 contracts is $558, the max loss is $342, and the break even is with TRIP at $16.38. This trade hasn’t filled yet. This trade filled at $0.38 on 11/6.

Bearish Trade #1

The company is Tanger Factory Outlet Centers (SKT 0.00%↑), and the trade is a vertical spread expiring on November 17th, buying the $24 strike puts and selling the $23 strike puts 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 SKT at $23.52. This trade hasn’t filled yet. This trade filled at $0.48 on 11/6.

Exiting These Trades

I’m setting a GTC orders to exit at 90% of the spread (I’ve raised this to 95% for TRIP and DDOG). I’ll lower those prices, if necessary, as we approach expiration.