Stock Earnings Reports | Option Alpha

Corporations release earnings reports quarterly. The report includes a balance sheet, income statement, cash flow statement, statement of stockholders’ equity, various notes, and management’s discussion and analysis of financial condition.

An earnings call accompanies the earnings report where management discusses the quarter’s financial activities and answers questions from analysts.

10-K

The 10-K is an annual form required by the SEC in which companies provide a comprehensive report of the year’s financial activities. The 10-K contains the company’s financial statements and corporate information for the fiscal year. The 10-K fits a specific form and appearance as required by the SEC and is similar to the annual shareholder report. Annual reports are created by the company’s investor relations department and often contain presentation-quality material and visuals not included in the basic 10-K.

10-Q

The 10-Q is a quarterly form required by the SEC in which companies provide a comprehensive report of the previous quarter’s financial activities. The 10-Q includes similar information as the 10-K but is less detailed and covers a shorter period of time. The 10-Q contains the company’s financial statements and corporate information for the previous three months.

Corporations have a set number of business days following the end of the quarter to file their 10-Q with the SEC. Along with the 10-Q and quarterly earnings call, companies provide forward-looking statements describing the current quarter and, often, the year ahead.

Earnings calendar

The earnings calendar provides details regarding the release of earnings reports. Earnings calendars provide the date corporate earnings will be released, the time (before the market opens or after the market closes), the previous year’s earnings for the quarter, and the consensus analyst earnings per share (EPS) forecast.

Earnings calendars are relatively stable from quarter to quarter. However, dates and times are subject to change until the company confirms the earnings release date.

Pre-market vs. post-market

Corporations do not typically release quarterly or annual earnings information during market hours. Instead, corporations release earnings and conduct an earnings call either before the market opens (pre-market) or after the market closes (post-market). Industry groups typically cluster earnings releases together and report around the same time. Post-market releases do not typically happen on Friday afternoons.

Earnings reaction

Earnings reports typically cause the most volatile price moves of the year for companies. Leading up to the earnings release, analysts speculate key metrics for companies such as earnings per share, sales per share, same-store sales growth, total sales growth, and many others.

Once the earnings report has been released, shares of the company’s stock quickly react to the new information. Shares will typically gap-up (the price of the company’s stock opens above the previous day’s close) or gap down (the price of the company’s stock opens below the previous day’s close) in reaction to the earnings announcement.

Companies with more stable earnings typically experience smaller price movements due to earnings announcements while companies with significant growth changes or new products will experience increased volatility after earnings reports.

Above-average moves are anticipated around earnings, and implied volatility rises significantly leading up to the announcement. Implied volatility then falls after the earnings report as the uncertainty is removed following the announcement.

FAQs

What do earnings reports mean?

Earnings reports are the public release of a company’s financial records. Corporations with publicly traded stock must meet periodic earnings reporting requirements as set by the Securities and Exchange Commission (SEC).

Corporations release earnings reports quarterly. The report includes an income statement, balance sheet, cash flow statement, statement of stockholders’ equity, various notes, and management’s discussion and analysis of financial condition.

Where can I find earnings reports?

There are numerous sources online that provide detailed information regarding earnings reports, both before and after the date the report is released. The SEC has a comprehensive system on their website called EDGAR, which displays all relative information for earnings reports.

What is the difference between an annual report and a 10-K report?

The 10-K is typically more detailed than the annual report. The 10-K is text only because it is created solely for the SEC and must adhere to their specific format guidelines. Annual reports are created for shareholders through the investor relations department and are typically more visually appealing with graphs and charts.

What is the difference between a 10-K and a 10-Q?

The 10-Q is a quarterly form required by the SEC in which companies provide a comprehensive report of the previous quarter’s financial activities. The 10-Q provides similar information as the 10-K but is less detailed and covers a shorter period of time. The 10-Q contains the company’s financial statements and corporate information for the previous three months.

How do I find my earnings date?

An online search will direct investors to the earnings calendar. The earnings calendar provides details regarding the release of earnings reports. Earnings calendars provide the date corporate earnings will be released, the time (before the market opens or after the market closes), the previous year’s earnings for the quarter, and the consensus analyst earnings per share (EPS) forecast. However, dates and times are subject to change until the company confirms the earnings release date.

What months are earnings season?

Earnings season is when the majority of companies release their earnings reports to the public. Typically, the earnings season begins shortly after the last month of the quarter and lasts roughly six weeks.

The bulk of announcements are made in the first two weeks of January, April, July, and October. Not all companies report in this timeframe, so it is important to check for the specific date of an individual company’s earnings announcement.

What time are pre-market earnings released?

Corporations do not typically release quarterly or annual earnings information during market hours. Instead, corporations release earnings and conduct an earnings call either before the market opens (pre-market) or after the market closes (post-market). The majority of pre-market earnings are released at approximately 8:30 a.m. EST.

How do you calculate the expected move on earnings?

Options can be used to calculate the expected move after an earnings announcement. The most efficient way to calculate the expected move is to use the closest expiration’s at-the-money straddle price.

This is accomplished by adding together the ATM call price and ATM put price of an option and multiplying by the probability range, then dividing the figure by the current stock price. This will provide the expected move in percentage value. Multiply the percentage value by the current stock price to determine the expected dollar move.

For example, if an at-the-money call option costs $2 and an at-the-money put option costs $2 on a $100 stock, the expected range is calculated by adding together the two options ($2.00 + $2.00) and multiplying by the expected range. A one standard deviation move is equivalent to 68%. $4.00 x 68% = $2.72/$100 stock price = an expected move of 2.72%, or $2.72. The expected range for the stock at earnings would then be $97.28-102.72.

Some brokerages will include probability indicators in their platform. Most probability indicators are calculated using a one standard deviation move, which encompasses approximately 68% of a stock’s expected move with normal distribution.