OWelcome to the ORATS Earnings Report, where we search for companies with upcoming earnings announcements, view historical earnings information, and find a potential options trade.
Read on or watch the presentation video here:
Let’s start by running an analysis of stocks reporting profits this week, which includes the total options volume indicator, sorted from largest to least.
Focusing on Goldman Sachs Group, as we click through, we see this large-cap capital markets company report earnings on Monday, July 18, ahead of the open.
The Earnings and Financials tab takes us to more detail showing the options market expecting a 3.5% move in either direction. This decision has been violated in 2 of the last 12 wins.
Meanwhile, the post-earnings move was outside the implied range 2 times. In these cases, long overlaps were profitable. The rest of the profit moves likely generated profitable short overlaps. We can overlay quarterly financial data by clicking on the ratios below the earnings chart. Let’s look at the PE ratio, which is the share price divided by trailing twelve month earnings per share.
For GS, the current PE ratio is 5.7, which is 14.3% lower than the average of the last twelve earnings observations. By returning to the Overview tab, we can quickly run an analysis to find the best options trades. Since profits are fast approaching, we look for neutral strategies and then filter the results of the analysis by S%, or smoothed edge, setting it between negative 3% and 3%.
This allows the results to be restricted to transactions that are priced fairly. The top-ranked trade is a long call schedule with strikes at 300, expiring Friday, September 16 and Friday, August 12, for a debit of $4.1.
By pulling up the trade, we can see the theoretical values in more detail. The distribution advantage, found by the expected value of the earnings picture over the historical distribution of the stock, has a 21.2% advantage. The expected advantage, which is derived from historical volatility, has an advantage of 1.2%. Finally, the smoothed edge, which is calculated by drawing a curve of best fit through the monthly implied volatilities, has an edge of 1.0%. The advantage is relative to the average market price of the trade. Larger positive edges are a theoretical advantage for the trader. We can also look at the earnings chart. The profit probability sums the nodes probability for the part of the win picture above the zero profit line over three standard deviations. For this trade, the profit probability is 55.28%. The risk reward divides the maximum gain by the maximum loss. Here, the 1.9 to 1 is the ratio of the maximum gain of $763 to the maximum loss of -$410. There are two break even points for this long call schedule at 281.54 and 321.5. Greek total and ThinkOrSwim code complete information on trade analysis popup.
Next, let’s look at this trade in the trade builder. Over the past month, the stock price has risen 2.9%, while the 30-day implied volatility has fallen 14.2%. The average slope of the trend lines is negative. The heat map on the right side of the chart is green where volatility and slope are undervalued, and red where they are overvalued. In this case, the short-term IV and slope are neutral, while the long-term is very overvalued.
We can also see this trade overlaid on the monthly implied volatility chart in the channel tab. The legs of this craft are circled. For any questions or issues with the item, please contact [email protected] To subscribe to the dashboard, please visit https://orats.com/dashboard.
The opinions and ideas presented herein are for informational and educational purposes only and should not be construed as representing trading or investment advice tailored to your investment objectives. You should not rely solely on the contents herein and we strongly encourage you to discuss any transaction or investment with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction or investment strategy is suitable for any particular person. Trading and investing in options involves risk and is not suitable for all investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.