Trade Alert: Earnings, 11/8/2023

One bullish bet for today.

Our Current Approach

Recall that we’re using these nine metrics,

• 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 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 (3.1)

1. Social data: +33.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 7

6. Recent insider transaction(s): None this year.

7. Zacks ESP: 20.19% (and a Zacks #1 stock)

8. RSI: 59

9. Short Interest: 5.1%

Details below.

Bullish Trade #1

The company is WIX.com (WIX 0.00%↑), and the trade is a vertical spread expiring on November 17th, buying the $87.50 strike calls and selling the $92.50 strike calls for a net debit of $2.25. The max gain on 2 contracts is $550, the max loss is $450, and the break even is with WIX at $89.75. This trade filled at $2.25.

Exiting This Trade

I’m going to set a GTC order to exit this one at 90% of the spread, as usual, and adjust based on how the stock reacts after earnings. Update: in light of the price action in the pre-market Thursday, I’ve raised my exit order to 95% of the spread. WIX has given up its pre-market gains, after its double beat and raise this morning, so I’ve lowered my exit price back to 90% of the spread. I’ll lower it more if necessary as we get closer to expiration next week.

In other news Affirm Holdings (AFRM 0.00%↑), which was one of our top ten names on October 26th, is currently up about 19% intraday.