When Do You Report Earnings?
By Mike Lawch, Optionetics.com
"One of our favorite volatility trades is to work around earnings report dates. We love to buy in advance of the report, when implied volatility is low, and sell near the report, when IV is high. This gives us a much greater chance of having a successful trade. Many of our clients trade like this also, but they often call us about how the earnings dates are determined, and why they are often hard to find out about far enough in advance. Let me start from the beginning.
A public company has certain SEC mandated requirements for reporting their earnings and this determines the latest date that they can report. For example, in a calendar year, a company usually has 45 days from the end of a quarter to publish their results. This would mean they would have to report no later than November 15 for the quarter ending September 30 and have all of their reports filed by that date. They can announce their earnings any time up to that point. Some companies close their books faster than others do. Banks, for instance, have always been the fastest, since they count their cash every day anyway, so a month or a quarter is really not that difficult. Manufacturing companies with widespread operations are typically the latest to report. They have to do things like take inventory, and other time consuming activities, at the end of a quarter before they can be sure of their results.
In the September quarter, for instance, we have had companies reporting since the first week in October, and they are still reporting into November. The vast majority reported during October, which was the month following the quarter. They will all be finished by November 15, and have their official documents filed in Washington.
There is no requirement that companies reveal when they plan to announce their earnings. Some companies are very good about this and will tell you exactly when they will be making the announcement. Dell is an example of a company that is very up-front about this. If you ask them, they will tell you well in advance the exact date and time of the announcement. Pfizer is just the opposite. They will not tell you the date in advance, and it varies somewhat from quarter to quarter. Some companies will announce a date, and then change it. COX was an example just this week, they announced two days early. This is entirely the company's prerogative, they can announce anytime they like.
We call companies directly before we place a trade, but often they will only give us an approximate date. Many traders will just estimate the date, based on when the company reported last quarter. For instance, if the company reported earnings on July 15, you could assume that they will report about October 15 (July plus 3 months). For purposes of entering a trade, an approximate date is OK, as long as IV is low. If you do place a trade, however, you need to be very careful about the upcoming date. In order to trade the IV you need to be watching closely just before the announcement date. You don't want to miss it.
There are also many companies that have fiscal year ends. This means that they will announce their earnings at different times than the calendar year companies....
"Earnings season" happens four times a year. This also means that there is some feast and famine in your trading schedule. For about 2 months of every quarter there are lots of earnings trades because there are many companies reporting. The other month is very sparse. No trades to put on. This is the period in which we do other trades and review our activities during the preceding quarter to see how we can improve our trading.
With this information, you can be a better volatility trader, and know how your trading should be scheduled for maximum profits. We wish you every success". |
