A never ending flow of information is constantly released that impacts the financial markets. The phrase “money never sleeps” is truer now more than ever before with the intertwined global economy and technology advances to monitor market minutia.
Information is power with the question of how to distill the important data.
Corporate earnings are an important scorecard to evaluate the financial fundamental condition of a stock. Whisper numbers and censuses estimates from analysts can provide some guidance going in.
A simple and often extremely effective calculation for the expected earnings move can be derived from the option market.
Here’s a smart money hacks you can use today:
1) Use the shortest expiration duration that captures the earnings event and add together the premium for the at-he-money call and put strikes.
2) Divide that total premium by the share price to get the measured move estimate percentage.
3) That percentage is what the options market is pricing in ahead of the earnings number.
While the key factor of stock direction from earnings is not answered, a good indication of the expected amplitude of the move has been calculated.
Using this simple hack can be valuable to evaluate what the professionals are expecting and have priced in the market.
