| Purpose | Detect and analyze earnings surprises to identify trading opportunities from post-result price movements on ASX-listed companies |
| Core Function | Compares actual reported results (underlying/cash and statutory) against consensus estimates, calculates surprise magnitude, factors in the dividend and franking declaration, and generates signals based on historical post-result drift patterns |
| Dividends And Franking | Australia uses dividend imputation: dividends are paid from after-tax profits and can carry franking credits at the 30% corporate rate. A 'fully franked' dividend passes on credits for tax already paid. • A large income-focused investor base (SMSFs, retirees) prizes franked dividends; the dividend declaration is part of the result, not separate from it. |
| Derivatives And Executability | Australian equity-derivative liquidity is far thinner than India's F&O market. The options content in this file is primarily EDUCATIONAL; practical use is limited to the most liquid names. • ASX SPI 200 futures (ASX 24, formerly SFE) on the S&P/ASX 200 - the main liquid index derivative for hedging/positioning. • Exchange Traded Options (ETOs) listed on only ~70 of the largest stocks, American-style, with limited depth. IV/expected-move analysis is reliable only on the most liquid names (e.g. CBA, BHP, the big banks). • Options over the S&P/ASX 200 (XJO) - European-style, cash-settled; moderate liquidity. • Effectively illiquid for retail - do not rely on them. • Very limited; do not assume weekly expiries for earnings timing. • Contracts for Difference (IG, CMC, etc.) are a popular OTC retail route for directional/leveraged exposure, but carry counterparty risk, financing costs and amplified loss potential - not exchange-traded. • For most ASX stocks, an earnings trade is expressed in the underlying shares (or a CFD), not in listed options. |
| Estimate Sources Australia | ASX Market Announcements Platform (MAP) • Thin analyst coverage for small/micro caps (especially junior resources); fewer reporting events (half-yearly) makes each one higher-stakes |
| Earnings Timing Australia | ASX normal trading 10:00 AM - 4:00 PM Sydney time (AEST/AEDT), with opening and closing single-price auctions |
Check: 1) the ASX Market Announcements Platform for the reporting calendar and 'half-year/full-year results' notices, 2) the company investor-relations site, 3) financial sites like Market Index or CommSec, 4) AlgoKing's reporting calendar.
Not necessarily. Options: 1) hold if you're a long-term investor, 2) reduce the position if the result is uncertain, 3) hedge (protective put on a liquid name, or SPI 200). Consider your horizon and risk tolerance, and watch confession season for warnings.
Initial reactions can be wrong or exaggerated: guidance contradicts the headline, the dividend/franking disappoints, algorithmic trading creates an initial move that humans fade, or profit-taking follows the gap.
It depends, but in Australia all three matter. A company can beat EPS yet fall if guidance is lowered or the dividend/franking is cut. The market is forward-looking and income-focused.
Drift typically lasts 1-5 trading days for the main move. Larger surprises can drift for 20+ days. With half-yearly reporting, each result carries more information and can have a longer tail.
Use Standardized Unexpected Earnings (SUE): (Actual - Mean Estimate) / Std Dev of Estimates. This normalises for different volatilities. Run it on underlying EPS.
Be aware of IV crush, compare the expected move to historical for a vol edge, and prefer spreads to reduce IV impact. On the ASX, do this only on liquid ETO names - for most stocks use shares or a CFD.
This can happen on a guidance disappointment, a dividend/franking cut, whisper expectations higher than consensus, or 'buy the rumour, sell the news'. Protect with stops.
Track bellwether results closely (e.g. CBA before the other banks report in May/Nov), identify the trend, position in unreported peers with similar exposure, and size conservatively.
Fading is risky and not for beginners. Only consider when the gap exceeds about 2x the typical reaction and there are reversal signals.
Pool data across stocks (essential given half-yearly reporting), use simple models to avoid overfitting, apply regularisation, use walk-forward validation, and accept wider confidence intervals.
Signals include unusual ETO volume on liquid names, IV rising faster than typical, and pre-result price drift. Caveat: much activity is hedging, not directional, and ASX option volumes are thin.
Transcribe the call, apply a financial sentiment model (e.g. FinBERT), extract key outlook phrases, quantify the tone change versus the prior period, and combine with the quantitative surprise.
Options include earnings as a factor, an earnings-timing factor, earnings momentum, or integration with other factors - benchmarked against the S&P/ASX 200.
Retrain around each reporting season with a multi-year lookback, monitor performance in between, and trigger an ad-hoc retrain if accuracy drops materially.
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