SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Earnings Momentum Trade in Oracle


We last wrote about Oracle on 2017-09-03 with this same back-test -- a 3-day momentum swing trade ahead of earnings and it has followed through for 8 consecutive pre-earnings cycles with a 290% total return during that historical period. Oracle's next earnings date is 12-14-2017, but this not is not yet confirmed. 

IDEA 
The idea is quite simple -- trying to take advantage of a pattern in short-term bullishness just before earnings, and then getting out of the way so no actual earnings risk is taken. Now we can see it in Oracle Corporation. 

The Short-term Option Swing Trade Ahead of Earnings in Oracle Corporation 
We will examine the outcome of going long a weekly call option in Oracle Corporation just three calendar days before earnings and selling the call the day of the actual news. Since Oracle reports earnings after the market closes, examining a pattern that goes right up to the close of that day still does not take earnings risk

This is construct of the trade, noting that the short-term trade closes before earnings and therefore does not take a position on the earnings result. 
 

setup_3_0_earnings.png
 
RISK MANAGEMENT 

We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting: 

setup_4040_limit.png

 

In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. 

DISCOVERY 

We found this pattern using the scanner in Trade Machine Pro. We looked at the NASDAQ 100 and then the 3-day pre-earnings long call scan: 

setup_scan_3dayslc_NASDAQ100.PNG
 

And here are the results: 

 

ORCLscanres_20171124.PNG


There are only seven companies in the NASDAQ 100 that have seen this pattern win at least four times in a row, and Oracle is one of those. 

 

RESULTS 
Below we present the back-test stats over the last two-years in Oracle Corporation: 
 

ORCL: Long 40 Delta Call
 
% Wins: 100%
 
Wins: 8   Losses: 0
 
% Return:  290% 

Tap Here to See the Back-test


The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). 

We see a 290% return, testing this over the last 8 earnings dates in Oracle Corporation. That's a total of just 32 days (4-day holding period for each earnings date, over 8 earnings dates). 

The trade will lose sometimes, and since it is such a short-term position, it can lose from news that moves the whole market that has nothing to do with Oracle Corporation, but over the recent history, this bullish option trade has won ahead of earnings.

 

Setting Expectations 
While this strategy has an overall return of 290%, the trade details keep us in bounds with expectations: 
      ➡ The average percent return per trade was 40.4% over just 4 trading days. 

Looking at More Recent History 
We did a multi-year back-test above, now we can look at just the last year: 
 

ORCL: Long 40 Delta Call
 
% Wins: 100%
 
Wins: 4   Losses: 0
 
% Return:  123% 

Tap Here to See the Back-test


We're now looking at 123% returns, on 4 winning trades and 0 losing trades. 
      ➡ The average percent return over the last year per trade was 30% over just 4 trading days. 

 

WHAT HAPPENED 
Bull markets tend to create optimism, whether it's deserved or not. To see how to test this for any stock we welcome you to watch this quick demonstration video: 


Tap Here to See the Tools at Work 


Risk Disclosure 
You should read the Characteristics and Risks of Standardized Options

Past performance is not an indication of future results. 

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. 

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. 

Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Calculating the Probability of Option Payoff

    A calculation of “breakeven” as well as maximum profit or loss, sets up a single system for modeling and comparing one option to another. But it might also require traders to adopt an unrealistic assumption about outcomes based on best-case or worst-care scenario.

    By Michael C. Thomsett,

    • 0 comments
    • 55 views
  • Realistic Expectations: Using History as A Guide

    One of the biggest challenges I come across with the typical investor is maintaining realistic expectations and being able to properly understand the tradeoffs between risk and return. We all want high returns with low risk and there’s no limit to the efforts we’ll make to find it.

    By Jesse,

    • 0 comments
    • 167 views
  • CAPM As an Alternative Option Pricing Model

    Options traders endlessly debate the merits of the Black-Scholes pricing model. Some swear by it and others don’t even try to use it. Given the many profound flaws in the model, it is not an accurate tool for developing a sense of where price is likely to move in the future. But there are alternatives.

    By Michael C. Thomsett,

    • 0 comments
    • 353 views
  • Option Payoff Probability

    Options traders must, naturally, be concerned with the likelihood of payoff for a strategy. Ironically, one of the most often cited statistics about profit and loss is simply incorrect. That statistic is captured in the headline of a story posted online “Trading Options: Data Shows That 75% or More of Options Expire Worthless.”

    By Michael C. Thomsett,

    • 0 comments
    • 446 views
  • The Minimum Effective Dose (MED) For Cash Flow Planning

    Financial planners can usually give generic advice that will be appropriate for the majority of Americans, and that’s the goal of this article. If we can get the fundamentals of cash-flow planning right (where to put your money after you earn it and pay your taxes and bills), we’re 80% of the way towards maximizing our financial situation.

    By Jesse,

    • 0 comments
    • 483 views
  • Are You Breaking Even? Or Losing?

    Among the good reasons to trade options is the need to meet or surpass your breakeven yield. This is the yield you need just to preserve your purchasing power; and it higher than most people think. In fact, most people relying on moderate to conservative yields from stocks, mutual funds, real estate and savings accounts might be earning well below this breakeven level.

    By Michael C. Thomsett,

    • 0 comments
    • 574 views
  • Buy When You Have the Money, Sell When You Need the Money

    Money can be quite an emotional topic for many of us. Emotions can enhance our experiences and relationships in many ways, but they can act as mental roadblocks especially when trying to make wise financial decisions. One of the most common emotional roadblocks I come across when working with individuals is an unwillingness to invest idle cash to meet long-term goals.

    By Jesse,

    • 0 comments
    • 1,171 views
  • Strategy Selection vs. Risk Management

    "A billion here, a billion there, and pretty soon you're talking about real money." Everett McKinley Dirksen. Let’s begin with the bottom line: When I talk to anyone about the concept of choosing an option strategy (or two) to adopt for trading, I stress that the strategy should have certain characteristics.

    By Mark Wolfinger,

    • 0 comments
    • 540 views
  • Blending Anchor Strategy

    Anchor and Leveraged Anchor investors frequently ask why the strategy only trades SPY and SPY options rather than individual stocks, other indexes or commodities. We avoid individual stocks because of tracking and divergence issues.

    By cwelsh,

    • 0 comments
    • 662 views
  • Fundamental Volatility and Stock Prices

    Every options trader must wonder whether any connection will be found between the company's fundamentals and stock prices (and in turn, option valuation as well). Because options are derived from stock price behavior, the analysis of stock movement is crucial to selecting options wisely; and that relies on volatility in the reported profit and loss over several years.

    By Michael C. Thomsett,

    • 0 comments
    • 647 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs