Great that the trade returned 10% in 2 weeks, but I highly doubt if one can generate a consistent alpha over a 5 year period using this strategy. On extremely short time frames, technical analysis may or may not work. You did deploy technical analysis by concluding that 54-58$ was a consolidating zone, and it was oversold in the <50$ territory. #investing #trading #techstocks #nasdaq #fintwit #earningsseason #earningscall #dowjones #cloudflare #stocks #robinhood PS - none of this is financial advise: please do your own due diligence and research before trading/investing. You could have executed similar trades in Snapchat during its Q2/Q3 2022 earnings, and made north of 20%. Liquidity: stocks with high liquidity/institutional ownership have a higher probability of moving back up because more analysts/hedge funds heterogeneously assess the stock and could issue a buy call. Moreover, you should also see by how much the company missed analysts estimations- that could indicate a material change in underlying business dynamics or the macroeconomy.ģ. ![]() Margin of Safety - if a stock falls by less than 10% after an earnings call, it's not worth undertaking the trade because your margin of safety is low. Simply put, the company should be strong enough to withstand a few poor quarters.Ģ. ![]() The devil is in the details: reading the earnings transcripts in granular detail is necessary - if the company's competitive moat has not materially changed, then there is no reason to fear the decline in share prices. Two weeks later, shares did indeed jump 10% higher and I exited the trade with a 10% profit.Įarnings trades like these can be simple, risk-free and decently profitable. Cloudflare's relative strength indicators and its intrinsic value felt much higher than $45. Smelling a possible arbitrage, I immediately purchased shares of about $10,000 the next morning and waited for things to settle down. Even in earlier episodes, the share would bounce back if it entered <$50 territory. Months before its earnings, Cloudflare's price seemed to be consolidating at $54-$58. This made no sense from a fundamental perspective. The reason why shares plunged was because they missed revenue estimates by about 3% amid sales slowdowns.Īssuming that the stock price is the discounted value of the free cash flows for the next 20 years, a 25% drop means that the market now believes that the life of the company is essentially cut short by 5 years (0.25*20) It involved no mathematical or technical analysis, just common business sense:Ĭloudflare fell by 25% after its earnings call on 27th April (as the sharp decline in the picture indicates). With significant margin of safety, I acted upon an earnings call trade that returned 10% in a risk adjusted manner. You'll often notice that stock prices fall or rise by as much as 25% right after an earnings call. The 10-year yield rose 3 basis points higher to 3.72%.How to profit and arbitrage from Quarterly Earnings Calls:. ![]() Brent crude, the international benchmark, slipped 0.01% to $75.98 a barrel. Oil prices traded mixed, with West Texas Intermediate up 0.36% to $71.81 a barrel.Adani Enterprises surged 19% after a report found no evidence of stock-price manipulation.The housing slowdown is a top signal that the US is headed for recession, Fannie Mae said.Russia is looking for allies to quicken the pace of de-dollarization, the nation's deputy prime minister said.The Fed is likely to pause interest rate hikes as inflation starts to cool, according to Moody's chief economist.The current rally in stocks is a head fake and not leading to a new bull market, Morgan Stanley said.Bitcoin has bottomed and the world's biggest cryptocurrency is on a new bull run, Michael Saylor said.China's economy has turned rotten, and its reopening boom is just a "charade," market expert Rushir Sharma said.
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