So I own CAR..Lost quite a bit of money on it. It came out with strong earning today. At this time, up about 17%. Just wondering in general, for a company that is in the S & P 500, but not a major player, when you have good earning, how much of the trend is option covering and how much is institutions buying?? Does this happen within minutes or does it take a few days. It would seem to me that the options get cleared quickly, but the institutions will buy in over a few days...Weeks. Thoughts??
Your mistake is thinking you can understand what thousands of people are doing in a short period of time. You would be God if you can do this.
Google post earnings announcement drift. There are a number academic papers on the subject publically available.
From Wiki... In financial economics and accounting research, post–earnings-announcement drift, or PEAD (also named the SUE effect) is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (even several months) following an earnings announcement. Once a firm's current earnings become known, the information content should be quickly digested by investors and incorporated into the efficient market price. However, it has long been known that this is not exactly what happens. For firms that report good news in quarterly earnings, their abnormal security returns tend to drift upwards for at least 60 days following their earnings announcement. Similarly, firms that report bad news in earnings tend to have their abnormal security returns drift downwards for a similar period. This phenomenon is called post-announcement drift. This was initially proposed by the information content study of Ray J. Ball & P. Brown, 'An empirical evaluation of accounting income numbers', Journal of Accounting Research, Autumn 1968, pp. 159–178. As one of major earnings anomalies, which supports the counterargument against market efficiency theory, PEAD is considered a robust finding and one of the most studied topics in financial market literature. The phenomenon can be explained with a number of hypotheses. The most widely accepted explanation for the effect is investor under-reaction to earnings announcements. Bernard & Thomas (1989)[1] and Bernard & Thomas (1990)[2] provided a comprehensive summary of PEAD research. According to Bernard & Thomas (1990), PEAD patterns can be viewed as including two components. The first component is a positive autocorrelation between seasonal difference (i.e., seasonal random walk forecast errors – the difference between the actual returns and forecasted returns) that is strongest for adjacent quarters, being positive over the first three lag quarters. Second, there is a negative auto correlation between seasonal differences that are four quarters apart.
There's also the question of published earning expectation (I.e. Mean analyst estimates) vs. market implicit expectation (which is much more difficult to capture). I'd argue the latter is the more important one...and also more elusive. You really only get confirmation of this the day after when you see the options activity, and it depends on the "shape" of the market how long it takes to cover.