Trade Alert: Earnings, 10/24/2023

Another bullish trade for today.

Today’s Earnings Trades

Recall we are looking at seven different metrics for earnings trades:

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.

• Portfolio Armor’s gauge of options market sentiment.

• Chartmill’s Setup rating. On a scale of 1-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.

• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.

• Recent insider transactions.

• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold. We’re looking for RSI levels below 70 for bullish trades and above 30 for bearish ones.

None of these metrics alone are dispositive, but we’ll consider the preponderance of evidence when placing our bets. Based on last week’s results, I’m giving a bit more weighting to Zacks ESP and RSI this week. We’ve got a bullish bet on one name today. Here’s how it stacks up on our seven metrics.

The Stock We’re Bullish On

Bullish Stock #1

1. Social data: +69.

2. PA Options sentiment: Moderately bullish.

3. Setup rating: 8

4. Zacks ESP: 0% (Neutral)

5. F-Score: 6

6. Recent insider transaction(s): Some large open market sales in August, including by the CEO, but I’m not sure how useful this is as an indicator with mega caps.

7. RSI: 53

Details below.

Bullish Trade #1

The company is Microsoft (MSFT 0.00%↑), and the trade is a vertical spread buying the $332.50 calls and selling the $335 calls for a net debit of $1.05. The max gain on 3 contracts is $435, the max loss is $315, and the break even is with MSFT at $333.55.

Exiting This Trade

I set a GTC order to exit this one at $2.25. I’ll lower that price if necessary as we approach expiration.