Trade Alert: Earnings, 2/20/2024

Four bullish and one bearish trades on companies reporting earnings on Wednesday and Thursday.

Note: We’ve got a short week, so I’m posting all of our earnings trades for this week here. I actually have a few more trades that I was going to include in this post but will include in a post on Wednesday. For an update to our usage of our composite score, please see the post below.

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 (3.4)

1. Social data: +54

2. PA Options sentiment: Bullish

3. Setup rating: 5

4. Valuation rating: 2

5. F-Score: 5

6. Recent insider transaction(s): Net open market sales peaking in July.

7. Zacks ESP: 13.64%

8. Zacks Ranking: 2

9. RSI: 46

10. Short Interest: 24.58%

Bullish Stock #2 (3.9)

1. Social data: +48

2. PA Options sentiment: Very Bullish.

3. Setup rating: 8

4. Valuation rating: 1

5. F-Score: 5

6. Recent insider transaction(s): Net open market sales, peaking in August.

7. Zacks ESP: -17.2%

8. Zacks Ranking: 1

9. RSI: 42

10. Short Interest: 4.07%

Bullish Stock #3 (6.6)

1. Social data: +26

2. PA Options sentiment: Very Bearish.

3. Setup rating: 6

4. Valuation rating: 0

5. F-Score: 5

6. Recent insider transaction(s): Net open market purchases in June.

7. Zacks ESP: -14.29%

8. Zacks Ranking: 3

9. RSI: 58

10. Short Interest: 11.92%

Bullish Stock #4 (5.8)

1. Social data: -21

2. PA Options sentiment: Very Bullish.

3. Setup rating: 5

4. Valuation rating: 4

5. F-Score: 8

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

7. Zacks ESP: 3.67%

8. Zacks Ranking: 2

9. RSI: 77

10. Short Interest: 1.15%

The Stocks We’re Bearish 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.

Bearish Stock #1 (-1.2)

1. Social data: +71

2. PA Options sentiment: Neutral.

3. Setup rating: 7

4. Valuation rating: 4

5. F-Score: 7

6. Recent insider transaction(s): None in the last 12 months.

7. Zacks ESP: -0.82%

8. Zacks Ranking: 4

9. RSI: 54

10. Short Interest: NA%

Details below.

Bullish Trade #1

The stock is Wayfair (W 0.00%↑), and the trade is a vertical spread expiring on February 23rd buying the $52 strike calls and selling the $53 strike calls for a net debit of $0.40. The max gain on 8 contracts is $480, the max loss is $320, and the break even is with W at $52.40. This trade filled at $0.40.

Bullish Trade #2

The stock is Exact Sciences (EXAS 0.00%↑), and the trade is a vertical spread expiring on March 15th, buying the $60 strike calls and selling the $62.50 strike calls for a net debit of $1.10. The max gain on 3 contracts is $420, the max loss is $330, and the break even is with EXAS at $61.10. This trade filled at $1.10.

Bullish Trade #3

The stock is Lucid Motors (LCID 0.00%↑), and our trade is a vertical spread expiring on February 23rd, buying the $3.50 strike calls and selling the $4 strike calls for a net debit of $0.21. The max gain on 15 contracts is $435, the max loss is $315, and the break even is with LCID at $3.71. This trade filled at $0.21.

Bullish Trade #4

The stock is Nvidia (NVDA 0.00%↑), and our trade is a vertical spread expiring on February 23rd, buying the $715 strike calls and selling the $720 strike calls for a net debit of $2.10. The max gain on 2 contracts is $580, the max loss is $420, and the break even is with NVDA at $717.10. This trade filled at $2.10. Note: the stock has dropped since I placed his trade—currently, it’s at around $685. If I were placing a trade on it now, I’d try buying the $685 calls and selling the $690 calls.

Bearish Trade #1

The stock is Keurig Dr. Pepper (KDP 0.00%↑), and our trade is a vertical spread expiring on March 15th, buying the $31 strike puts and selling the $30 strike puts for a net debit of $0.40. The max gain on 8 contracts is $480, the max loss is $320, and the break even is with KDP at $30.60. This trade filled at $0.40.

Exiting These Trades

I’m going to place GTC orders to exit at 90% to 95% of the spreads, and lower the prices as necessary as we approach expiration.