Trading Earnings? Get Earnings Analysis on thinkorswim in a Single Snapshot

thinkorswim has developed an interface dedicated to researching the effects that earnings announcements have on the prices of stocks and options.
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Key Takeaways

  • The Earnings sub-tab offers eight quarters of data on stock prices and related options for the period five days before and after each earnings release        

  • Compare actual earnings numbers with the consensus estimates from third-party analysts for each quarter 
  • Learn how active stock and option traders might use earnings data to set trading objectives

Let’s face it: Earnings season is go time for the active trader. It’s a time to focus, point, and hit the button.

Each quarter, publicly traded companies are required to share fundamental information on the state of their business, most critically, on the earnings and revenue that the company produced. As this new information is released, a company’s shares will typically (but not always) make some sort of price adjustment to reflect the new data.

Such a price move might be up or down; big or small; immediate or delayed. For the active trader, an earnings release means two things—opportunity and risk—but finding these opportunities and managing the risks means they need the right research tools to understand the effects earnings announcements can have on stock and options prices.

TD Ameritrade clients can turn to the Earnings sub-tab in the thinkorswim® trading platform as a one-stop interface for critical information to analyze the price and volatility movements of a given stock around its historical earnings events.

Here’s a look at this suite of tools and how you might use it to help navigate earnings announcements.

Surveying the Earnings Landscape, Top to Bottom

The Earnings sub-tab is the blue light bulb icon nested under the Analyze tab. Once you're there, just type any stock symbol into the box in the upper-left corner. Figure 1 shows the main features from top to bottom, and how you might use them: 

  1. MMM. Get a current reading of the Market Maker Move (MMM) indicator, a measure of excess volatility implied by current options prices. The MMM of 9.728 means the options market is implying a move, up or down, of about $9.73. Just note, the MMM's results are theoretical in nature. That means they're not guaranteed, and do not reflect any degree of certainty of an event occurring.
  2. Price chart. See quarterly stock price history covering the period five days before and five days after each earnings release. Did the price have a gap move up or down (or not at all)? Was there any follow-through?
  3. Historical and implied volatility. Historical volatility is based on actual results, whereas implied volatility is an estimate of future price movement. As you look at the period five days before and after the earnings release, note the interplay between the two measures. Implied volatility typically falls after earnings are released, but not always. At the start of the five day period, where is implied volatility relative to the historical? 
  4. At-the-money (ATM) straddle. Since a straddle is priced for uncertainty, and after earnings are released much of the uncertainty has disappeared, a short-dated straddle will lose much of its value at that time. Choosing a straddle strategy during earnings season depends on which you think might be greater—the movement of the stock versus the amount the straddle will likely lose after the release.
  5. Quarterly earnings data. View two years of quarterly earnings-per-share (EPS) data, including the projected consensus from third-party Wall Street analysts and the actual earnings for the stock.
Earnings analysis tools

FIGURE 1: FOCUSING THE LENS. The earnings analysis toolkit includes a price chart and options data for the five-day period before and after an earnings release, as well as eight quarters of earnings history. Point to any place to call up the data for that period. For illustrative purposes only. Past performance does not guarantee future results.

What’s Your View—Wide-Angle, Zoom, or Time Lapse?

The sub-tab allows you to choose between three separate views. Depending on your trading objectives, you might opt for one, two, or all three of them. 

Fit All is the default choice when you select the sub-tab. It allows you to see all the data in one view, which can help you see the big picture. Alternatively, you could look at the small view by selecting Zoom. This mode will show intraday (30-minute aggregation) data for the stock price and options volatility. How did prices react? Although past performance is not necessarily indicative of future results, looking at price movement during and after past earnings releases can certainly help you formulate your objectives. 

Finally, the Compare tab allows you to overlay the most important price and volatility measures of each historical quarter. The different measures of volatility and pricing can be filtered using the checkboxes on the left side. There’s also a set of checkboxes to control which quarters are displayed. Quarters can also be filtered by whether they “beat,” “met,” or “missed” the consensus estimates from Wall Street analysts (see figure 2).

Filter for earnings data
FIGURE 2: ADD A FILTER. Want to just look at certain data, such as "just Q1 of each year" or "only in quarters where the company missed earnings?" Add a filter or make manual selections. For illustrative purposes only.  

Setting Your Exposure 

“Nifty tool set, but now what?” you might ask. The beauty of the tool is its flexibility, but here are a couple ideas to get you started. 

Refer back to the chart in figure 1. Does anything jump out at you? Some traders might point to three quarters ago (FQ2 18 on the chart) and note:

  • The company missed analyst estimates for the first time in over a year (the yellow “actual” earnings number was below the green “Wall St.” number).
  • Share prices took a tumble on that day.
  • Going into the release, the red implied volatility reading was close to the yellow historical volatility reading, but the historical reading spiked precipitously afterward. 
  • The at-the-money straddle initially fell, as it typically does after an earnings release, but then spiked afterward.
  • Going into the next report (FQ3 18), the implied volatility reading was well above the historical, perhaps a reflection of the action from the previous quarter.

An active stock trader might use this info to help make a more informed decision on the possible direction and magnitude of a reaction and might use the volatility info to set an entry or exit point.

An option trader, however, might look at the data to decide between strategies. Some options strategies, such as short calls, cash-secured puts, credit spreads, or iron condors, might be appropriate in a relatively high-volatility environment, whereas debit spreads and calendar spreads are designed for a low-volatility setup. Note that in figure 1, in the far right column—the upcoming earnings release—the implied volatility reading is sitting well above the historical.

There are plenty of ways to play earnings season. No matter what your objectives and risk tolerance, the Earnings sub-tab in the thinkorswim platform can be your focal point. 

Doug Ashburn is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.

Key Takeaways

  • The Earnings sub-tab offers eight quarters of data on stock prices and related options for the period five days before and after each earnings release        

  • Compare actual earnings numbers with the consensus estimates from third-party analysts for each quarter 
  • Learn how active stock and option traders might use earnings data to set trading objectives
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