Posted in
Education
By: Tom Gentile
on April 18th, 2023
Have you seen this before?
A stock you are invested in, or track reports its earnings for the latest quarter. It reports their earnings per share (EPS) is $1.02. The expectations were for an eps of $1.00. They also report their revenue for the quarter came in at $1 Billion. Their revenue expectations were 1.01 billion.
The company beats on their earnings expectations yet the stock drop 1.25% on the announcement.
And then another company you invest in or track reports eps of $.86 versus expectations of $0.89 and yet they are up 1% after the earnings. They also report they expect increased sales in the next two quarters.
Wait. What? One company beat their earnings expectations and drops, yet the other misses yet pops higher.
Should I have asked the questions ‘How Many Times Have You Seen This Before?’ and really ask it as a rhetorical question?
What a Company Says Along WITH Their Earnings can Affect Share Price
Take a look at Netflix, Inc. (NFLX). Here is the info from www.earniongswhispers.com for their eps & revenue numbers for today:
Here are the numbers from United Airlines (UAL) for today:
Both beat on their eps numbers, (UAL loss less per share than expected – considered a beat) and both fell short on their revenue expectations.
Now look at what is going on with each after hours according to the www.cnbc.com website.
Wait. What? One company beat their earnings expectations and drops, yet the other misses yet pops higher.
Wait Until After Earnings are Reported Before Considering an Options Trade
If you didn’t quite believe this was possible, the above info and images shows that yes, it is true that can and at times does happen.
It is this unpredictability that speaks to why we educate that without options education and MORE SPECIFICALLY get options education around earnings reports that one stays away from having an option trade on whose expiration is past the eps announcement date/time.
There is the whole aspect of options suffering a volatility crush (where implied volatility, or IV, that is a component used in pricing options drops and reduces the value/price of the option).
Regardless if the eps and revenue numbers are good or bad and regardless of price action, the IV crush alone can devalue the option and cause a loss for one’s option trade.
Best to stand aside from an option trade whose expiration is past the eps date/time.
Let the numbers come out and then consider an options trade. We will discuss an option strategy after an eps report in a future educational article.
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
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