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

  • Put/Call Parity - Two Definitions

    Put/call parity is a term options traders use to mean one of two things. The simplest definition and the one most applicable to most options traders compares the similarity in the bid/ask spread and the net debit or credit resulting from this.

    By Michael C. Thomsett,

    • 0 comments
    • 158 views
  • Put Selling: Strike Selection Considerations

    When selling puts, such as we do in our Steady Momentum PutWrite strategy, there are many questions a trader must answer: What expiration should I use? What strike should I sell? Should I choose that strike based on delta or percentage out of the money?

    By Jesse,

    • 0 comments
    • 207 views
  • What Can We Learn From UBS YES Lawsuit?

    News followers may have seen the recent stories on UBS being sued by its clients and investors who participated in UBS’s “Yield Enhancement Strategy (YES).”  Evidently, numerous UBS clients signed up to participate in an iron condor strategy that lost a lot of money.They’re angry, and they’re filing a lawsuit.

    By cwelsh,

    • 2 comments
    • 810 views
  • Pinning Down the ‘Option Pinning’

    What many people on SO have in common is that they have read the books of Jeff Augen on options trading. Although written a decade ago they continue to be an interesting source of strategies for the retail investor. Retail investors have particular constraints that make most of the broad theoretical musings on options rather moot.

    By TrustyJules,

    • 0 comments
    • 320 views
  • Holding Positions into Expiration

    "Every once in a while you must go to cash, take a break, take a vacation. Don't try to play the market all the time. It can't be done, too tough on the emotions." - Jesse Livermore

    By Mark Wolfinger,

    • 0 comments
    • 255 views
  • Tales Of How Big Trades Went Wrong

    One way to learn from your past mistakes is having to go through the painful and challenging experience of explaining them. Another way is to listen to others who might have lived through some disgruntling trades. Joseph Trevisani goes deep into the rationale he followed during the volatile EUR/JPY days of 2007 in this article.

    By Kim,

    • 0 comments
    • 259 views
  • Covered Straddle Explained

    The covered straddle is a perfect strategy for those all too common sideways-moving trends. When a company’s stock is in consolidation, how can you make trades? No directional trend exists, so most traders simply wait out this period.

    By Michael C. Thomsett,

    • 0 comments
    • 408 views
  • Why Doesn't Anchor Roll The Long Calls?

    Recently, an Anchor subscriber asked, “Why don’t we roll the long calls in the Leveraged Anchor portfolio after a large gain and take cash off the table?”  This question has a multi-part answer, from taxation to how the delta on a position works.

    By cwelsh,

    • 0 comments
    • 241 views
  • Backtesting Pre Earnings Straddles Using CML TradeMachine

    Our members know that buying pre earnings straddles is one of our most consistent and profitable strategies. Yet some options "gurus" continue conducting studies, trying to prove that the strategy doesn't work. Today we will show how to do the backtesting properly, using the CML TradeMachine, the best backtester in the industry.

    By Kim,

    • 0 comments
    • 717 views
  • 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,

    • 7 comments
    • 632 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