What is earnings season, common earnings terminology, and how earnings are played
What is earnings season?
Earnings Report (financial report): Financial statements generally refer to three tables (referring to the balance sheet, income statement, and cash flow statement), while financial reports not only refer to the three tables, but also include notes or complete financial analysis. It is a way of showing a concrete demonstration of a company's financial process.
A U.S.-listed company publishes an earnings report (also known as Form 10Q) every three months in accordance with SEC regulations, disclosing its revenue, expenses, profits, and other financial details during that period, so that shareholders can understand the company's performance , and filed with the securities regulator, the U.S. Securities and Exchange Commission (SEC).
Earnings Season (earnings season): Generally, a few weeks after the end of the quarter, listed companies begin to disclose their earnings one after another. We call this period of earnings reporting the earnings season. For example, now is the start of the Q1 earnings season for U.S. stocks.
Why should we pay attention to the financial reports of listed companies?
In fact, when we look at financial reports, we mainly look at the two indicators of revenue and profit EPS, and look at their relationship with Wall Street analysts' expectations. Generally, when a company's revenue and EPS are two indicators Beat (more than analysts' expectations) expected), the stock price will rise. When revenue and EPS both miss (below analyst expectations), the stock price falls. And we can use the volatility of stock prices around the earnings season to speculate or arbitrage.
In addition to short-term operations, focusing on financial reports can also help us better understand a company. When we are ready to make long-term investments, we need to study its fundamentals, study its moat width, study whether it has sustained profitability, and Financial reports can just provide us with an opportunity to understand the company, and mature investors will read the quarterly and annual reports of listed companies this year before investing.
Analysis of common vocabulary in financial report season
Revenue refers to the total inflow of economic benefits formed by the company in daily activities such as selling goods, providing labor services and transferring asset use rights, including main business income and other business income.
EPS is the abbreviation of Earnings Per Share, which refers to the after-tax profit per share of common stock, also known as "earnings per share". EPS (Earnings per Share) = Earnings/Total Equity
Beat/Miss means exceed/worse respectively, and are mainly used here to compare the two indicators of actual revenue and EPS with analysts. For example, Revenue beat, EPS beat, this sentence means that revenue exceeds analyst expectations and EPS exceeds analyst expectations
Where to find financial report related information
You can view the “news”, “announcements” and financial reports related to the company’s previous financial reports under individual stocks of Tiger App. As far as I know, Tiger’s “announcements” are linked to SEC documents. In addition, “Tiger Research Reports” are also available. There will be some brief earnings analysis for the next week.
众所周知，财报前后会有股价波动，而作为长线投资者为了预防股票短期的下行风险，可以选择期权来预防，例如你持有100股阿里巴巴$(BABA)$，但你认为阿里巴巴近期财报不及预期，会有小范围波动，但你长期看好的话，你可以sell call与你手中的正股做一个covered call的策略。
Buffett once said in an interview with CNBC that he wants to cancel the quarterly report because he believes that shareholders should not only focus on the short-term performance of the company, but should look at the long-term results. It can be seen from the side that when a company with good fundamentals falls sharply because its financial report is lower than expected, it is the time for us to pick up bargains.
call option bet
Most of the above are related to the underlying stocks. In fact, we can also use options to bet on financial reports. This method is the most risky and, of course, the most profitable. Listed below are some common options strategies
Directly buy call or put to bet on the rise and fall of the underlying stock
Calendar strategy buys forward options and sells near-term options
Vertical arbitrage strategy, with the same expiration date, buy in-the-money options and sell out-of-the-money options
Straddle option strategy, buying call and put at the same time, betting that the underlying stock rises and falls greatly.
Of course, the ways of "playing" financial reports are not limited to the above-mentioned methods. While making money, you must also pay attention to risks!
First of all, I mentioned the relationship between the financial report and the stock price. Although the general situation mentioned above is that the revenue and EPS exceed expectations, the stock price will rise sharply, but there are also special circumstances. For example, when everyone knows that the company has been doing well recently Under the circumstance, it will be deployed in advance, and after the release of the financial report, it will be beneficial to all, which will lead to a decline.
Secondly, other indicators were less than expected, such as the inventory problem that plagued Nike $(NKE)$, the number of subscribers of Netflix $(NFLX)$, the GMV of Jingdong $(JD)$ and other values, as well as the management's speech, etc. It will also affect the stock price.
Finally, we should mention the wear and tear of options. Some stocks have small fluctuations and are not suitable for options. For example, although it exceeds expectations, the underlying stock has only risen by about 2%, or it may first rise and then fall. Cause call and put to fall together