5/3 Earns

I've analyzed five issues with looming earnings releases. A non-descript batch, I must say.

Of the issues analyzed, four will be released today (May 3), and one, TWX, tomorrow (May 4). None have sufficient surprises over the last five quarters to merit a second look under my rules.

I look at these points when I analyze for direction-agnostic earnings plays (that means option straddles or stranges):

• The 14-day average true range (ATR) is 2.5% of the price or higher.
• Of the last five quarters, earnings have shown a 50% surprise, in either direction, at least three times, and additionally, a 20% surprise at least two times.
• I also look at the implied volatility (IV) of the options vs. the statistical volatility (SV) -- what the price of the stock has done in the recent past. Statistical volatility is sometimes called "historical volatility".

GNW and KGC come close to meeting the surprisiness requirement, with two quarters with 50%+ surprises. My rules require three quarters. GNW has additionally two 20%+ surprise, and KGC has one.

KGC is one of two stocks that meet my average true range rule, at 2.8%. The other is AUY, at 3.3%, but AUY's surprise-count is low.

The implied volatility for all of these stocks is on the high side. Buying option straddles or strangles on them is a case of buying high, with a good chance that the trader will be forced to sell low.

In one case, GNW, the implied volatility is a full 0.3 above statistical volatility, far greater than the gap normally seen.