① EPS — The Heartbeat of Earnings
EPS (Earnings Per Share) tells you how much profit a company generated for each share outstanding. The formula is straightforward: Net Income ÷ Shares Outstanding. For example, if NVDA posts quarterly net income of $20 billion with 24.4 billion shares outstanding, its EPS is approximately $0.82.
What truly matters is not the absolute number but how it compares to the consensus estimate. If EPS grows 10% year-over-year but the market expected 15%, the stock can still fall. This explains the paradox of "good earnings, declining stock."
· Before earnings: check the EPS consensus on FactSet or Seeking Alpha
· "Beat + Raised Guidance" is a stronger signal than a beat alone
· Always distinguish Adjusted EPS (non-GAAP) from GAAP EPS — stock-based compensation exclusion matters
② P/E Ratio — Is This Stock Expensive?
The P/E ratio (Price-to-Earnings Ratio) measures how many times a company's annual earnings you are paying for each share. A P/E of 30x means it would take 30 years of current earnings to recoup your purchase price.
However, P/E is meaningless without context. To evaluate whether NVDA at 45x P/E is expensive, you need to: ① compare to sector peers, ② compare to its own historical P/E, and ③ factor in growth (PEG ratio). High-growth companies can justify P/Es of 50–100x, but if growth slows, valuation compression can be swift.
| Category | Typical P/E Range | Interpretation |
|---|---|---|
| High-growth AI / Tech | 40–100x | Pricing in future growth; sharp drop on earnings miss |
| Mature large-cap tech | 20–35x | Stable growth; AAPL / MSFT level |
| Financials / Industrials | 8–15x | Low growth, dividend-oriented |
| S&P 500 average | ~22x | Long-run historical average (trending higher post-2010) |
· Forward P/E (next 12 months estimated EPS) is more useful than trailing P/E for direction
· PEG = P/E ÷ Growth Rate; PEG < 1 signals undervaluation relative to growth (Peter Lynch's rule)
· In rising rate environments, high-P/E growth stocks fall first — rates and P/E move inversely
③ Short Selling — Betting on a Decline
Short selling means borrowing shares, selling them, and buying them back later at a lower price. Example: borrow 100 TSLA shares at $400 each, sell for $40,000. If the price drops to $300, buy them back for $30,000 and return them — netting $10,000 profit.
The theoretical loss on a short position is unlimited — the stock can keep rising indefinitely. This is exactly what happened during the GameStop (GME) short squeeze. Stocks with high Short Interest can explode upward on a single piece of good news, triggering a forced short squeeze.
· Most retail investors don't short directly, but knowing Short Interest helps anticipate squeeze risk
· Short Interest > 20% is both a warning sign and a potential opportunity — one catalyst can spark a surge
· Inverse ETFs (SQQQ, SPXU) offer short-like exposure — use only for short-term hedging
④ Options Expiration — Days the Market Jolts
Options expiration falls on the third Friday of each month. All unexercised option contracts expire worthless, forcing dealers (option sellers) to rapidly unwind hedge positions. The result: elevated intraday volatility compared to normal sessions.
The third Fridays of March, June, September, and December are "Quadruple Witching" days — equity options, index options, index futures, and single-stock futures all expire simultaneously. Trading volume spikes and volatility peaks, especially in the final hour (3:00–4:00 PM ET).
| Expiration Type | When | Impact Level |
|---|---|---|
| Monthly expiration | 3rd Friday of each month | Moderate |
| Quarterly expiration | 3rd Friday of Mar / Jun / Sep / Dec | High (Quadruple Witching) |
| Weekly (0DTE) | Every Friday | Rapidly growing; intraday volatility driver |
· Avoid new entries on expiration day — high volatility with no directional bias
· 0DTE (same-day expiry) options have surged since 2024 → every Friday warrants caution
· The week after expiration marks the start of a new options cycle — directional trading resumes
"In the short run, the market is a voting machine. In the long run, it is a weighing machine."
— Benjamin Graham
EPS and P/E are the scales. Short selling and expiration days are when the voting machine swings wildly. Understanding both lets you stay calm amid short-term noise.
※ This report is provided for informational and educational purposes only and does not constitute a recommendation to buy or sell any security.
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