Earnings Uncertainty: The Old Tools Don’t Work Anymore

2020-04-20T12:58:44+00:00April 20th, 2020|Earnings Derivatives, Earnings Season|

This is the most challenging earnings season in history.    Amidst the covid-19 induced earnings uncertainty, the old tools for trading earnings season won’t work anymore.  How can investors adapt?

Investing in a time of suspended earnings guidance

Most publicly traded companies have traditionally provided earnings guidance to help investors forecast near term performance, and estimate company valuation.  Although this practice is far from perfect, many investors rely on it in order to build forecast models and make decisions.  Yet management teams at most companies have no way of predicting how […]

Here Come Bank Earnings: There Simply is no Precedent

2020-04-13T20:53:38+00:00April 13th, 2020|Banks, Earnings Season|

Bank earnings reports provide a key vantage point from which to understand the economy.   In the past few years, most banks have consistently grown earnings, and consistently exceeded  analyst estimates. However, analysts have had a difficult time predicting bank earnings in the time of coronavirus.

As Chris Kotowski of Oppenheimer wrote:

This earnings preview is the most difficult to write in our careers because there is simply no precedent

On the one hand, increased market volatility will drive higher trading revenue. On the other hand, banks will need […]

Earnings Power Indexing

2020-04-27T14:19:15+00:00March 17th, 2020|Earnings Derivatives, Indexes|

Click here to download Earnings Power Indexing as a PDF. 

BLX Global Indexes provide pure exposure to the aggregate financial statement performance of select industries and sectors. Our patent pending methodology turns bottom line financial metrics into an investable asset, creating new opportunities for speculation and hedging.

The basic concepts are similar to traditional stock indexes: a list of companies and a normalized number to describe the aggregate performance. However, the methodology behind our indexes is different than traditional stock indexes. The calculation methods for our indexes are based on the […]

Investing and Risk Management With Earnings Derivatives

2020-03-17T16:43:46+00:00March 17th, 2020|Earnings Derivatives|

This post is an excerpt from  Earnings as an Asset Class 

The dynamics of earnings trends create opportunities across asset classes. Generating alpha requires looking beyond basic equity positions to exploit the rich opportunity set in every earnings announcement. Earnings derivatives can be used by sophisticated investors as a tool for alpha generation and risk management.


Maximize Risk/Reward Tradeoff from Fundamental Analysis

Earnings derivatives are a pure, leveraged bet on business fundamentals. If one has a unique edge in predicting upcoming earnings, then buying a put or call on the earnings number […]

How Earnings Derivatives Work

2020-03-17T20:27:20+00:00March 16th, 2020|Earnings Derivatives|

This post is an excerpt from  Earnings as an Asset Class 

Earnings derivatives function as cash-settled options, with expiration dates that coincide with the release of company earnings reports.

Example(Call Option Investment)

John Jones is bullish on a company’s earnings and wants to isolate his exposure to earnings growth. Sell-side analysts expect the company to report $10 million in annual earnings, but he believes it will be significantly higher. He can buy a call option on the earnings stream 20% above the projected earnings ($12m) for $10. This $10 option premium entitles […]

Different Drivers of Equity Returns

2020-03-17T16:25:22+00:00March 15th, 2020|Earnings Derivatives|

This post is an excerpt from  Earnings as an Asset Class 

Investment analysts are intensely focused on quarterly earnings; yet the relationship between earnings and stock returns is volatile and inconsistent, especially over shorter time periods. At long last, Earnings Derivatives®  turn earnings into an investable asset class. The same tool works for other financial metrics such as revenue, EBITDA, and operating income. This makes it possible to invest in value drivers individually or to hedge stock portfolios against earnings surprises. Earnings Power Indexing extends this tool to […]

Airline Revenue: The Coronavirus Hedge

2020-03-11T18:03:40+00:00March 10th, 2020|Indexes|

The outbreak of Coronavirus Disease 2019 (COVID-19) started in China, but has now spread globally.  At the time of writing, the latest data show slightly over 100,000 confirmed cases worldwide, and just under 4,000 total deaths.  In the US there has about 600 coronavirus cases and 21 deaths However, testing has been limited, so its likely that are many more cases.  Two weeks ago, the US Center for Disease Control and Prevention (CDC)  warned that Americans should be ready to experience disruption to their daily lives.

Investors […]

BLX Global Indices Now Available on Thomson Reuters Eikon

2020-02-03T21:28:35+00:00February 3rd, 2020|Indexes|

Investors can now access data on BLX Global Indices using Thomson Reuters Eikon by typing in the appropriate ticker symbols.

BLX Global FAANG Revenue Index         (.BLXGLFAANGR )

BLX Global FAANG Earnings Index          (.BLXFLFAANGE )

BLX Global Select Bank Revenue Index   (.BLXSBR )

BLX Global Select Bank Earnings Index     (.BLXSBE )

You can also calll up all indices together by calling  0#BLXINDICE?

Indices price daily at 6:30 EST (11:30 GMT).

How Top Investors Hedge Long Term Stock Positions

2019-12-27T12:16:11+00:00December 22nd, 2019|Earnings Derivatives|

The nation’s greatest achievements have always derived from long-term investments. In both national policy and business, effective long-term strategy drives economic growth and job creation.

-Jamie Dimon and Warren E. Buffett Wall Street Journal Editorial June 6, 2018.

Important developments in business occur over many years and decades. Yet companies report financial information every quarter. Oftentimes, important company initiatives negatively impact short term earnings, but lead to long term company outperformance. This creates a paradox for investors that want to hold a long term stock position for many years. […]

3 Threats to Profit Margins in 2020

2020-01-06T11:25:03+00:00December 19th, 2019|Earnings Derivatives, Indexes|

Corporate profits are near all time highs, and high earnings multiples indicate the market expects continued profit growth.  BlackRock’s 2020 Global Outlook identified two key trends that have underpinned high corporate profit margins in recent decades:

Profit margins of publicly listed companies have been on a decades-long march higher. This has been driven by two key trends: globalization (integrated supply chains and labor markets that have, along with technological innovation, reduced input costs) and rising market concentration (the advent of superstar firms that dominate […]

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