Each earnings season the 22V quant team ranks companies due to report to identify companies that could see outsized moves (both higher and lower) based on positive or negative earnings quality and sentiment. Stocks with a lower Earnings Turbulence ranking, higher Earnings Quality ranking and Earnings Sentiment score have better fundamental readings and are more likely to beat earnings. Stocks falling into high Earnings Quality and positive Earnings Sentiment are highlighted green, and stocks with high Earnings Turbulence and negative Earnings Sentiment are highlighted red. These lend themselves to options plays. Below is the list of companies due to report this week, and I highlight two preferred trades below that:
With 129 of the 500 names in the S&P due to report this week, I wanted to highlight 2 names (UBER and KKR) that I believe offer attractive setups (based on the work of the quant team) to own limited-risk option structures into the earnings reports based on their findings.
UBER:
Shares dropped by about a third from their September highs to their recent lows. The stock was finally able to close above the 50-day moving average in the past few weeks (something it was unable to do since November). Besides the 22V quant team being “positive” on the name into earnings, the street also seems overall positive as well. The average 12-month PT for UBER is still nearly 105 (~ 40% higher), and the discount that UBER shares trade to that average PT is now just below the -year highs.
While the options for UBER are pricing in a 6.25% 1-day move for earnings on 5/6, this seems more than “fair” when you consider the stock has averaged a 5.8% 1-day move over the last 8 reports, and the fact that 6 of those 8 reports saw UBER move a minimum of 5.1%. In addition, the short-interest in UBER shares is now back to the 1-year highs and that could also lead to some upside volatility should stock continue to move back higher after the sharp decline.
Trade:
Buy UBER May 15th 80 calls for ~ $1.45 (UBER 75.12 Fri close ref)
Trade Details:
- Buying the 2-week upside UBER calls ahead of earnings announcement on 5/6
- The 22V quant team has identified UBER as a possible upside candidate due to high earnings quality and positive sentiment
- Shares recently broke above the 50-day moving average (first time since November) and had declined by nearly a third from their highs
- Options for UBER look “fair” given recent realized moves, but sharp pullback and high short-interest could lead to an outsized move higher after they report
- Large open-interest in the May 15th 80 calls (36k) could also lead to additional upside volatility should we see a gamma chase higher by the dealers who are likely short them
- Shares remain ~ 40% below the street’s current 12-month PT (the widest discount the stock has traded at in 2 years)
- Limited-risk way to add upside exposure in the name given attractive setup
- Please reach out to me or the 22V sales team for updated pricing and execution capabilities
UBER shares dropped by ~ a third from their highs. They have been able to climb above their 50-day moving average and could see further upside
UBER shares now trading at a nearly 40% discount to the street’s current 12-month PT (near widest discount in the past two years)
UBER short-interest back at the 1-year highs
KKR
Even though shares of KKR are ~ 40% below their 2025 (all-time) highs, it seems as if there remains further downside risk. The private markets remain in trouble and even though shares have rallied off their March lows, the longer-term technical picture continues to look very poor for KKR (shares rallied by as much as 30% off their March lows but remain below the shorter-term December downtrend resistance)
With the company due to report earnings on 5/5, the options are pricing in a 4.7% 1-day move for the shares. While this seems a bit “rich” given the 3.7% average 1-day move over the last five reports, I believe this is more than justified given the cloud that remains over the entire private credit market. In addition, the shares declined by 5.35% back in Feb, and that was after major concerns about the private credit markets started to arise in the fall.
Given the sharp rally off the recent lows, as well as the “negative” ranking the 22V quant team has put on the name, I like the risk/reward of buying low-cost May 15th downside structures. Here is a trade I would consider if looking to either hedge long exposure in the name, or as a limited-risk bearish bet for earnings:
Buy KKR May 15th 100/90 put spread for ~ $2 (KKR 103.68 Fri close ref)
Trade Details:
- Buying the 2-week (May 15th) 10-point put spread ahead of earnings on 5/5
- Shares have rallied by as much as 30% off their March lows ahead of earnings, yet remain below both the longer-term and shorter-term key resistance levels
- Stock has been identified by the 22V quant team as a possible downside risk name given poor earnings quality and sentiment
- Trade offers a 4x to 1 max payoff on the limited-risk hedge/bet and starts less than 4% below spot
- Please reach out to me or the 22V sales team for updated pricing and execution capabilities
KKR shares remain 40% below their all-time highs, and are also below the longer-term uptrend support (even after the sharp rally off their March lows)
KKR shares rallied 30% off their lows, but have still been unable to climb above the December downtrend resistance
KKR 1-month (May) 40-delta put vol has moved down significantly from the March highs (and you capture earnings on 5/5)
