Trade Alert: Earnings, 11/2/2023

Three bullish and three bearish bets applying our new composite score.

Applying Our Meta Score To Earnings Trades

Recall that these are the nine metrics we’re looking at now 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 0-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Chartmill’s Valuation rating. On a scale of 0-10, this is a measure of fundamental valuation incorporating common rations like P/E, PEG, EBITDA/Enterprise Value, etc. For bullish trades, the higher the better the Valuation rating the better; for bearish trades, the reverse.

• 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.

• Short Interest (noted when 10% or higher).

And what we’ve started doing this week is assigning a numerical figure for each metric (2 for very bullish, 1 for bullish, 0 for neutral, -1 for bearish, and -2 for very bearish), and then adding them up to a composite score for each stock.

The Next Step

The next step here will be to measure the accuracy of each metric at the end of the week, and weight them accordingly going forward.

The Stocks We’re Bullish On

The number in parentheses represents our composite score for a stock, based on all the metrics: higher = more bullish, and lower (more negative) = more bearish.

Bullish Stock #1 (8)

1. Social data: +48.

2. PA Options sentiment: Bullish.

3. Setup rating: 8

4. Valuation rating: 6

5. F-Score: 6

6. Recent insider transaction(s): Open market sales.

7. Zacks ESP: 27.12%

8. RSI: 46

Bullish Stock #2 (3)

1. Social data: +20.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 7

6. Recent insider transaction(s): Open market sales most months.

7. Zacks ESP: 0.76% (also a Zacks #2 ranked stock)

8. RSI: 38

Bullish Stock #3 (3)

1. Social data: +49.

2. PA Options sentiment: Very Bullish.

3. Setup rating: 5

4. Valuation rating: 1

5. F-Score: 3

6. Recent insider transaction(s): More open market sales than buys in March; none since.

7. Zacks ESP: 0% (Neutral)

8. RSI: 47

9. Short Interest: 18%

The Stocks We’re Bearish On

We’re doing two things differently with our #1 bearish pick: first, we’re betting against a stock with bullish social data, and second, we’re betting against one with an RSI indicating that it’s oversold. Our bet here is that the 0 valuation rating outweighs the RSI of 28; that is, that despite this stock being technically oversold, value investors won’t find it attractive enough to buy it.

Bearish Stock #1 (-5)

1. Social data: +26.

2. PA Options sentiment: Very Bearish.

3. Setup rating: 3

4. Valuation rating: 0

5. F-Score: 2

6. Recent insider transaction(s): Large open market sales last winter; none since.

7. Zacks ESP: NA

8. RSI: 28

Bearish Stock #2 (-6)

1. Social data: -41.

2. PA Options sentiment: Very Bearish.

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 3

6. Recent insider transaction(s): Big net open market sales in May.

7. Zacks ESP: 0% (Neutral)

8. RSI: 35

9. Short Interest: 16.99%

Bearish Stock #3 (-5)

1. Social data: -63.

2. PA Options sentiment: Bearish.

3. Setup rating: 3

4. Valuation rating: 1

5. F-Score: 2

6. Recent insider transaction(s): Open market purchases in single digits last November, open market sale at $49 in September.

7. Zacks ESP: 0% (But also a Zacks #2 stock)

8. RSI: 37

9. Short Interest: 14.66%

Details below.

Bullish Trade #1

The company is Yelp (YELP 0.00%↑) and the trade is a vertical spread expiring on November 17th, buying the $42 strike calls and selling the $44 strike calls for a net debit of $0.88. The max gain on 4 contracts is $448, the max loss is $352, and the break even is with YELP at $42.88. This trade hasn’t filled yet. This trade never filled.

Bullish Trade #2

The company is Block (SQ 0.00%↑), and the trade is a vertical spread expiring on November 3rd buying the $43.50 calls and selling the $44.50 calls for a net debit of $0.45. The max gain on 7 contracts is $385, the max loss is $315, and the break even is with SQ at $43.95. This trade hasn’t filled yet. This trade filled at $0.45 on 11/3.

Bullish Trade #3

The company is FuboTV (FUBO 0.00%↑), and the trade is a vertical spread expiring on November 3rd buying the $2.50 strike calls and selling the $3.50 strike calls for a net debit of $0.27. The max gain on 12 contracts is $876, the max loss is $324, and the break even is with FUBO at $2.77. This trade filled at $0.27.

Bearish Trade #1

The company is Tucos (TCX 0.00%↑), and the trade is a vertical spread expiring on November 17th buying the $17.50 puts and selling the $15 puts for a net debit of $1.25. The max gain on 3 contracts is $375, the max loss is $375, and the break even is with TCX at $16.25. This trade hasn’t filled yet. This trade never filled.

Bearish Trade #2

The company is Weight Watchers (WW 0.00%↑), and the trade is a vertical spread expiring on November 3rd buying the $8 strike puts and selling the $7.50 strike puts for a net debit of $0.24. The max gain on 14 contracts is $364, the max loss is $336, and the break even is with WW at $7.76. This trade filled at $0.24

Bearish Trade #3

The company is Carvana (CVNA 0.00%↑), which we have had traded before, both successfully and unsuccessfully, and the trade is a vertical spread expiring on November 3rd buying the $29 strike puts and selling the $28 strike puts for a net debit of $0.47. The max gain on 7 contracts is $371, the max loss is $329, and the break even is with CVNA at $28.53. This trade filled at $0.47.

Exiting These Trades

For the FUBO trade, I’m setting a GTC order to exit at 85% of the spread; for the others, at 90% of the spread. I’ll lower those prices, if necessary, as we approach expiration.