Trade Alert: Earnings, 2/8/2024

A bullish bet on company reporting today that also happens to be one of our recent top names. Plus, a post-earnings trade.

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 (7)

1. Social data: +32

2. PA Options sentiment: Very Bullish.

3. Setup rating: 5

4. Valuation rating: 0

5. F-Score: 3

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

7. Zacks ESP: 31.58%

8. Zacks Ranking: 2

9. RSI: 58

10. Short Interest: 17.91%

Details below, plus our post-earnings trade.

Bullish Trade #1

The stock is Affirm Holdings (AFRM 0.00%↑), and the trade is a vertical spread expiring on February 9th, buying the $47.50 strike calls and selling the $48 strike calls for a net debit of $0.20. The max gain on 20 contracts is $600, the max loss is $400, and the break even is with AFRM at $47.70. This trade hasn’t filled yet. $0.24. The max gain on 10 contracts is $260, the max loss is $240, and the break even is with AFRM at $47.74. This trade hasn’t filled yet. This trade never filled.

Bullish Trade #2

The stock is Affirm Holdings (AFRM 0.00%↑), and the trade is a vertical spread expiring on February 9th, buying the $50 strike calls and selling the $51.50 strike calls for a net debit of $0.15. The max gain on 15 contracts is $525, the max loss is $225, and the break even is with AFRM at $50.15. This trade hasn’t filled yet. $0.20. The max gain on 15 contracts is $450, the max loss is $300, and the break even is with AFRM at $50.20. This trade filled at $0.20 on 2/8/2024.

Post-Earnings Trade

Our post-earnings trade is on Alibaba (BABA 0.00%↑), which we mentioned in the post below. The trade is a vertical spread expiring on May 17th, buying the $70 strike calls and selling the $75 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 BABA at $72.25. This trade filled at $2.25 on February 8th.

Exiting These Trades

I’m going to set GTC orders to exit at about 90% to 95% of the spread and lower the price if necessary as we approach expiration.