From: Martin Zeman Sent: 7/17/2018 2:37:49 PM To: 'Paul Barrett CC: Stewart 0ldfield Subject: I/I DB Derivs: Stock Replace Winners ahead of Earnings Lower delta risk during earnings with options This quarter seems to be another where expectations are high and so beats will be shrugged off and misses get punished. Last week we had a note looking at stock reactions to earnings; The initial move on SPX and NDX constituents earnings last quarter were mostly negative, even on beats, before retracing the move higher over the following week or so; misses were hit harder, but also recovered (albeit less). • Average 1 day earning move of beats = -0.11% and the average 1 week move -0.01%, but the 1M return was 2.5%: roughly in-line with the SPX return over the period of 2.4% • Average 1 day earning move of beats = -1.22% and the average 1 week move -0.74%, but the 1M return was 1.14%: much lower than the SPX return. The question remains if it will look like that again this quarter. The bad NFLX print may be a harbinger to other long- momentum, short-value, or long-growth stocks. Based on last quarter's earnings reactions as well as the possible contagion from factor rotation on the back of Netflix, stock replace winners ahead earnings. SPX & NDX stock replacement candidates based on relatively low vol and outperformance over last 3 months DB Equity Derivatives ticket Name Spot 3M Return Next Earnings Implied Move Report Date on Earnings ATM 1M N/3M RV Ratio M ATM Vol %-ile Short Interest as % of Float MID UR ADVANCED MICRO DEVICES 16.58 57.6% 25-Jul 5.56% 1.01 65.40% 18.14% TRIP UW TRIPADVISOR INC 59.35 41.4% 1-Aug 9.94% 0.77 70.52% 15.78% CMG UN CH IFOTLE MEXICAN GRILL INC 452.06 35.1% 26-Jul 6.84% 0.51 61.81% 10.93% AAP UN ADVANCE AUTO PARTS INC 139.67 29.1% 14-Aug 4.41% 1.08 60.53% 5 42% M UN MACY'S INC 36.99 27.8% 9-Aug 3.20% 0.99 67.36% 14.82% CNC UN CENTENE CORP 133.23 18.8% 24-Jul