Get Ready for a Busy Earnings Week

As you know, we were watching out for Delta Air Lines’ earnings report this week to see if it met our trading parameters. But based on what it reported and Wall Street’s reaction, our guidelines for triggering a trade weren’t met.

I do have some news for you though…

We have a rash of earnings reports to look forward to next week — potentially eight — starting off with Netflix on Monday.

Question is: Will any of them meet or surpass our parameters and trigger a trade?

Netflix would seem the likeliest candidate. Amid our 10 years of backtested data, Netflix shows up on 27 occasions because of the steady returns it has generated post-earnings or because of the earnings it reported — or both. So, basically, the company has represented a potential trading opportunity in two out of every three earnings reports.

To give you a better understanding of some of the data we look at, here are the stock market returns for Netflix after 14 of the 27 instances in which the company met or topped our preliminary parameters. These are the instances in which we would have placed a trade:

I don’t expect you to examine all these numbers. The real point here lies in the third column — the one labeled “3 wks,” meaning these are the returns Netflix’s shares tallied three weeks after the company posted quarterly results that met or bested the parameters we’ve set. The third column shows the most consistent positive return profile. That’s what we want — consistency, either up or down, since we can play both sides of the trade by owning either call options (bullish) or put options (bearish).

What this says, then, is that Netflix has a history of posting positive gains when it meets or beats our parameters. This degree of stock market returns will generate substantially larger returns in the options market, where we will do our trading.

Thus, if Netflix on Monday once again meets or exceeds our triggers, we will soon be buying at-the-money call options and holding them for a maximum of three weeks.

After Netflix, we have seven more opportunities on tap next week:

  1. Railroad operator Kansas City Southern, which reports on October 18.
  2. Toy giant Mattel, which reports on October 19.
  3. Rural lifestyle retail chain Tractor Supply Company, also on October 19.
  4. Equipment rental firm United Rentals, on October 19 as well.
  5. Defense contractor Textron, which reports on October 20.
  6. Advertising behemoth Interpublic Group, which reports on October 21.
  7. Semiconductor maker Lam Research is tentatively on the docket as well, but it hasn’t yet confirmed its earnings-release date.

So that’s what’s upcoming as we begin to move into the meat of this quarter’s earnings season. Since this could be a busy week, be sure to keep an eye on your inbox. If any trades are triggered, I will have a dispatch to you immediately.

Until next time, good trading…

Jeff Opdyke
Editor, Earnings Drift Alert