Personally I have played a few earnings. The principle was to buy an OTM (+1StDev) call option just before, and close just after, the event. The tickers were the ones with a strong overall (3M, 6M, 12M) relative strength over the SPY . Here I am going to try another approach. Looking to make something like this for 'each' ticker but it's time consuming. What's of interest is the ... / IV column in the 10X header. It's the StDev move required for the option to 10X. The lower the StDev the higher the likelihood. Gotta check across multiple tickers because the ratio might be (very) similar. Ideally I would finish the analysis 1hr before the close for today AMC & tomorrow BMO earnings. I think I can remove the OPTION header. It's useless. Just buy the nearest expiration contract. We don't care about day to expiry. We care about earnings.
As per factset … Overall, 77% of the companies in the S&P 500 have reported actual results for Q4 2024 to date. Of these companies, 76% have reported actual EPS above estimates, which is below the 5-year average of 77% but above the 10-year average of 75%. I was looking to forecast surprise and found Zack.com’s Expected Surprise Prediction (ESP). What they say … The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier. They use this figure as the Most Accurate Estimate and compare it to the Zacks Consensus Estimate to compute the ESP. The result … Stocks likely to Surprise with 70% Accuracy Earnings ESP has proven to be a very valuable tool for investors seeking stocks that are most likely to beat earnings estimates. As indicated earlier, in our extensive 10-year backtest. Amazing … They underperform the 10-year average of 75% earnings beat. They say that if you take 10 stocks with positive ESP then 7 out of 10 might have a positive surprise. But that’s the base case. Also if a stock has a negative ESP then it won’t necessarily miss the estimates. Useless. Maybe IBD’s EPS rating might be useful.
How did you get to the point where you determined 1 std = 10x return, is there a calculation you’re using?
Anyway … the goal isn’t to forecast surprise. But I think beat & raise / miss & lower, Might provide the greatest volatility. Over 1 DTE (earnings plays) I believe the 1StDev is the median move of previous earnings itself ? Or the IV, HV (both expressed on a daily basis). The 10x is my target / benchmark then I compute the number of StDev (multiples) required for the underlying to reach it. I could use IV as my basis for standard deviation but everything would be equal. I could use HV as my basis but it doesn’t take into account the volatility around earnings. The options (strike & price) are chosen based on my 10x target. The call option has the lowest 10x underlying price and the put option has the highest 10x underlying price (nearest from current underlying price). I get the nth target as strike + optionPrice * n for calls and take the min strike - optionPrice * n for puts and take the max I posted a screenshot about this on the other thread. Based on the spreadsheet above PARA can deliver the most if there is a surprise (multiple StDev move). Less than 3StDev (past earnings moves wise) for the option to 10X (intrinsic wise only). I am open to criticism and improvement.
This post is neither a criticism nor a suggestion but a reflection of my own painful, decade long experience, participating in this cut throat business. @Maverick74 told me back in 2014-15: There is no edge, buying or selling options, it is all priced in. Think about this: Historically 75% of earnings have positive surprises, if I were the market, why wouldn't I price that in already? My approach: Hunt for black/grey swans. Low probability, low win rate but huge profit potential, that is if you can stand long period of drought and lumpy outcome. Only earning worth trading is huge surprise (e.g., recent META), a grey swan that happens infrequently and worth hunting for. It is a tough gig and very hard work. Take care and good luck to you because luck helps a lot.
There is no edge in buying a single-option contract. But there is an edge if you buy/sell combinations of multiple contracts. It is up to you to find that edge.
Guess I’ve been lucky to 4x my account in the previous month with only 3 gainers and a bunch of loss / break even. As you said … it helps to be lucky. I am just trying to do more of what has been working for me so far (event driven options plays) until it doesn’t. What I do is “high risk, high reward” because I don’t hedge against adverse events (I take a directional bet). But over the long run I might just lose money that’s for sure. Yeah 75% positive surprise but it doesn’t mean 75% positive reaction neither Sometimes a company beats earnings and revenues but provides a weak forward guidance and the market punish the stock. I don’t think everything is priced in … There are still tradeoff to be done and the market can’t price the future. It’s only tentative. Just look at the IV which isn’t a perfect fit for the future realized HV.