Sentiment Analysis and Earnings

Transcription

1 Sentiment Analysis and Earnings This class is a production of Safe Option Strategies and the content is protected by copyright. Any reproduction or redistribution of this or any Safe Option Strategies presentation is strictly prohibited by law. The information presented in this class is for education purposes only. Safe Option Strategies does not make any recommendation to buy or sell stocks or options. Trading stocks and options comes with risk and you are solely responsible for any losses you may incur as a result of trading.

2 What is Sentiment Analysis 1. What Does Market Sentiment Mean? The feeling or tone of a market (i.e. crowd psychology). It is shown by the activity and price movement of securities. ( ) 2. How do you measure sentiment? 3. How do you use the information?

3 How Do You Measure Sentiment? 1. Put/Call Ratios 2. VIX 3. General Market Conditions 4. World Events 5. Common Sense

4 Put / Call Ratios 1. CBOE posts put/call ratios at the end of every week of trading ( ). 2. The posted number is reflective of the number of long puts ordered for every long call ordered (not every order is filled). 3. A number less than 1.0 reflects fewer put orders than call orders and a number above 1.0 reflects more put orders than call orders. 4. A ratio of.85 is considered neutral sentiment because more people understand and use long calls and it is expected that there will be more orders for them.

5 Put / Call Ratios 1. This period of time was relatively neutral on directional sentiment. 2. The sentiment on these days was quite bearish. 3. Sentiment on these days leaned bullish. 4. As with many indicators in the market this is only one indicator, and needs to be put into context of the Big Picture.

6 Company Sentiment Notice the number of long call orders are significantly higher than the long put orders at the same strike price. This represents short or near term bullish sentiment.

7 Company Sentiment Notice the number of long call orders are higher than the long put orders at the same strike price. This represents medium term bullish sentiment.

8 Company Sentiment Notice the number of long put orders are higher than the long call orders at the same strike price. This represents long term bearish sentiment.

9 The VIX

10 The VIX

11 General Market Conditions When you are looking at technical indicators such as the 5/20 day EMA or the RSI or MACD to see if a stock is moving bearish or bullish, look at the same indicators on the indexes. Don t ever forget that even though the DOW Jones Industrial Average only measures the 30 largest companies in the US, 85% of all publically traded companies follow its lead. If the DOW gives bearish technicals the company you are trading has an 85% chance of following. So if you are trading a stock in the opposite direction of the general market make sure you have very good reason to do so.

12 World Events War; hurricanes; political contests all of these things can have an effect on what the markets will do. While you don t have to be a news junkie, you do have to pay attention to what is going on around you and place your positions accordingly. News events will often times only effect a stock s short term movement, but bigger global events like wars and tsunamis can put major pressure on the stock market.

13 Earnings We only know three things about any company we trade: 1. We don t know anything at all about what direction the price of the stock will go. 2. We do know when the next earnings event is. 3. We know that earnings events are the most likely thing to change the direction of a stock.

14 A Typical Earnings Report 1. Report on Total Sales 2. Report on Profit 3. Earnings Per Share 4. Revenue Per Share 5. Guidance Statement (Outlook)

15 Analysts and Analysts Expectations What Does Analyst Expectation Mean? A report issued by an individual analyst, investment bank or financial services company indicating how a particular company's stock will perform in the coming quarter. Analysts provide guidance as to how they expect a company to perform. This is typically a range of values that a particular variable is expected to fall between. If a stock performs better than what analysts expected, it is considered to have "beat expectations" or delivered stronger-than-expected results.

16 A Typical Earnings Report