Trade Alert: Earnings, 1/24/2024

Another very bullish bet.

Note: we had our first exit this week from an earnings trade yesterday, a 119% gain on a bearish bet against Logitech (LOGI 0.00%↑). The company we’re betting on today doesn’t report until Monday, but we’re looking to take advantage of a recent pullback by placing our trade today.

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 (3.7)

1. Social data: +88

2. PA Options sentiment: Very Bullish.

3. Setup rating: 4

4. Valuation rating: 1

5. F-Score: 3

6. Recent insider transaction(s): Net open market buys in March and May; larger net open market sales peaking in June.

7. Zacks ESP: -1% (approximating, due to a zero denominator).

8. Zacks Ranking: 3

9. RSI: 40

10. Short Interest: 13.19%

Given the very bullish social data and options sentiment on this one, we’re again going to be a little more aggressively bullish on this one than usual.

Details below.

Bullish Trade #1

The company is Sofi Technologies (SOFI 0.00%↑), and our trade is a vertical spread expiring on February 2nd buying the $8 strike calls and selling the $8.50 strike calls for a net debit of $0.18. The max gain on 20 contracts is $640, the max loss is $360, and the break even is with SOFI at $8.18. This trade filled at $0.18 on 1/24.

Exiting This Trade

I’m going to place a GTC order to exit this trade at 90-95% of the spread, and lower that price as necessary as we approach expiration.