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 Trading in Google


Alphabet Inc (NASDAQ:GOOGL) follows the overwhelming pattern of this bull market's personality -- bullish momentum in a stock just days before earnings. Let's take a look at how just a two trading day period has been influenced so heavily by optimism. Alphabet reports earnings on 2-1-2018, after the market closes.

Which is also the same day that Apple and Amazon report. Two trading days before 2-1-2018 would be Tuesday, January 30th. 

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, looking at just the 2 trading days before earnings. 

The Short-term Option Swing Trade Ahead of Earnings in Alphabet Inc 
We will examine the outcome of going long a weekly out of the money call option in Alphabet Inc just two trading days before earnings and selling the call the day of the actual news. But, since Alphabet reports earnings after the market closes, this back-test does not take a position on the earnings result -- it closes before the report. 
 

setup_2_0_earnings.png



Often times we look at option set-ups that are longer-term, and take no directional bet -- this is not one of those times. This is a no holds barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk. 

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. 

RESULTS 
Below we present the back-test stats over the last two-years in Alphabet Inc: 
 

GOOGL: Long 40 Delta Call
 
% Wins: 87.5%
 
Wins: 7   Losses: 1
 
% Return:  136% 

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 136% return, testing this over the last 8 earnings dates in Alphabet Inc. That's a total of just 16 days (2-day holding period for each earnings date, over 8 earnings dates). 

Setting Expectations 
While this strategy has an overall return of 136%, the trade details keep us in bounds with expectations: 
      ➡ The average percent return per trade was 21% over two-days. 
      ➡ The average percent return per winning trade was 28.4% over two-days. 
      ➡ The percent return for the losing trade was -31% over two-days. 

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

GOOGL: Long 40 Delta Call
 
% Wins: 100%
 
Wins: 4   Losses: 0
 
% Return:  102% 

Tap Here to See the Back-test


We're now looking at102% returns, on 4 winning trades and 0 losing trades. 
      ➡ The average percent return over the last year per trade was 22%. 

WHAT HAPPENED 
Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical analysis or non-directional trades for any stock using empirical results rather than guesses, 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. 

 

 

 

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

  • Building a Short Strangles Portfolio

    In my last article I showed you what you can expect selling short strangles and straddles and how much leverage is appropriate. Today I want to show you how to build a well diversified short strangle/straddle portfolio and how to trade it through difficult times.

    By Stephan Haller,

    • 1 comment
    • 153 views
  • Selling Short Strangles and Straddles - Does it Work?

    I have seen a lot of discussions on Twitter lately about the issue if selling naked strangles or straddles is a great strategy or a recipe for disaster. If you have read my books or if you are following my sample portfolio, you know that I'm a huge fan of selling short strangles and straddles.

    By Stephan Haller,

    • 42 comments
    • 686 views
  • Who Wants The Last Nickel?

    “The safest way to double your money is to fold it over and put it in your pocket.” Kin Hubbard. In this article I will discuss the reasoning behind buying back the short options and not waiting till expiration. Two of my basic trading tenets are related:   

    By Mark Wolfinger,

    • 0 comments
    • 22 views
  • Debunking the "Trading Options for Income" Myth

    "Real trading system returns are too irregular in the short term for consistent weekly returns every time and the only 'trader' that every had regular monthly returns was Bernie Madoff" - Steve Burns. So true. This is why "trading options for income" promoted by some options "gurus" is so misleading.

    By Kim,

    • 0 comments
    • 316 views
  • Selling Naked Strangles: The Math

    Selling short (naked) strangles is heavily promoted by some options "gurus". Is it a good strategy? It might have an unlimited (theoretical) risk, but what about the return? Is the return worth the risk? We decided to do some math, based on real prices, not some theoretical "studies".

    By Kim,

    • 5 comments
    • 480 views
  • Don’t Buy Thanksgiving Turkeys as Investments

    Nassim Taleb tells a great story about Thanksgiving turkey’s in his 2007 book, The Black Swan. "Consider a turkey that is fed every day…Every single feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say.

    By Jesse,

    • 0 comments
    • 142 views
  • Obey Reality and Win by Not Losing

    “I’ll do anything to lose weight (except diet and exercise),” is the same kind of magical thinking by investors who will do anything to outperform the market except study and practice discipline. It takes novice investors about a year to realize that you can’t consistently beat or time the market buying individual stocks or funds.

    By Kim,

    • 0 comments
    • 159 views
  • Follow Your Plan: Don’t Engage in Reckless Trading

    Setting up some internal rules for your trading looks like a must first-step before setting up your account and getting into your platform. You need to get your own trading plan and then stick to it. Self-discipline and avoiding recklessness can be huge for your balance.

    By Kim,

    • 0 comments
    • 225 views
  • 4 Patterns For Forex Profitability

    What makes a forex trader profitable? Looking at a wide array of real data, four patterns are found. Timing is critical. The best time to trade is not necessarily what you thought it would be, and it certainly depends on the trading style.

    By Kim,

    • 0 comments
    • 274 views
  • Long and Short Straddles: Opposite Structures

    Simplification: We can all better understand options trading by removing the complexity so often seen in articles. One of the best ways to understand the profit potential and risk levels of any options strategy is through diagrams and a demonstration of the formula.

    By Michael C. Thomsett,

    • 0 comments
    • 317 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