Ultimately, the bottom-line miss didn't seem to matter, with EW stock rising more than 2% following the disclosure. This dynamic speaks to the broader concern with trading securities ahead of a major announcement. It's very common among retail culture to promote the idea that certain market gurus can feel out results before they materialize. Even generously accepting this premise, you never know how the market will respond.
In other words, you have to be prescient and an expert psychologist. And without a correlation between earnings performance and share price outcome, the unknown unknowns of pre-earnings gambles, in my opinion, represent a nightmare. Post-earnings, at least a good chunk of the unknowns have been washed over.
Moving forward, I find the volatility skew of EW stock rather curious and enticing. Volatility skew is a screener that identifies implied volatility (IV), or a stock's potential kinetic output, across the strike price spectrum of a given options chain. For the March 20 expiration date, the smart money's baseline urgency for hedging is limited, while premiums for convexity at the tails is elevated.
On the lower strike boundaries, put IV is noticeably priced higher than call IV, implying demand for downside insurance. On the upper boundaries, call IV rises above its put equivalent, reflecting demand for upside convexity (should EW stock significantly higher).
What's perhaps most significant is the information by omission. For strikes near the at-the-money price, the volatility skew curvature is flat, indicating a rather neutral profile. Given that EW stock is down roughly 8% on a year-to-date basis, and only up less than a percent over the past six months, you would expect greater downside insurance.
You don't see that and that could present a contrarian opportunity.
Establishing The Trading Parameters Of EW Stock
While we now have a general understanding of smart money ...
