Costco Wholesale Corporation, COST, earnings, trade, return, bullish
Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
Preface
There is a bullish momentum pattern in Costco Wholesale Corporation (NASDAQ:COST) stock 7 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market.
While the last 3-years look good, it's really the results in the previous year that are eye popping.
Costco's next earnings release is due out on 3-7-2018 after the market closes according to our earnings date date provider Wall Street Horizon. 7-days before then would be 2-28-2018 near the market close.
LOGIC
The logic behind the option trading backtest is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date. Now we can see it in Costco Wholesale Corporation.
We examine the outcome of getting long a weekly 40 delta (out of the money) call option in Costco Wholesale Corporation 7-days before earnings (using calendar days) and selling the call on the day of earnings, but before the actual announcement so no earnings risk is taken.before the earnings announcement.
Here's the set-up in great clarity; again, note that the trade closes before earnings, so this trade does not make a bet on the earnings result.
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:
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
Here are the results over the last three-years in Costco Wholesale Corporation:
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 707% return, testing this over the last 11 earnings dates in Costco Wholesale Corporation.
Setting Expectations
While this strategy had an overall return of 707%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 45 over 7-days%.
➡ The average percent return per winning trade was 68.4% over 7-days%.
➡ The average percent return per losing trade was -60.1% over 7-days%.
Note that the losses can be quite severe.
Is This Just Because Of a Bull Market?
It's a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."
The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days.
* Yes. We are empirical.
* Yes, you are better than the rest now that you know this.
* Yes, you are powerful for it.
Back-testing More Time Periods in Costco
Now we can look at just the last year as well:
Tap Here to See the Back-test
We're now looking at 238% returns, on 4 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 49.4%.
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.
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.
The Incredible Year of Patterned Momentum for Costco Wholesale Corporation Ahead of Earnings
Costco Wholesale Corporation (NASDAQ:COST) : The One-Week Pre-earnings Momentum Trade With Options
Date Published: 2018-02-27Author: Ophir Gottlieb
Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
Preface
There is a bullish momentum pattern in Costco Wholesale Corporation (NASDAQ:COST) stock 7 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market.
While the last 3-years look good, it's really the results in the previous year that are eye popping.
Costco's next earnings release is due out on 3-7-2018 after the market closes according to our earnings date date provider Wall Street Horizon. 7-days before then would be 2-28-2018 near the market close.
LOGIC
The logic behind the option trading backtest is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date. Now we can see it in Costco Wholesale Corporation.
We examine the outcome of getting long a weekly 40 delta (out of the money) call option in Costco Wholesale Corporation 7-days before earnings (using calendar days) and selling the call on the day of earnings, but before the actual announcement so no earnings risk is taken.before the earnings announcement.
Here's the set-up in great clarity; again, note that the trade closes before earnings, so this trade does not make a bet on the earnings result.
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:
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
Here are the results over the last three-years in Costco Wholesale Corporation:
| COST: Long 40 Delta Call | |||
| % Wins: | 81.8% | ||
| Wins: 9 | Losses: 2 | ||
| % Return: | 707% | ||
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).
Track this trade idea. Get alerted for ticker `COST` 7 days before earnings
We see a 707% return, testing this over the last 11 earnings dates in Costco Wholesale Corporation.
Setting Expectations
While this strategy had an overall return of 707%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 45 over 7-days%.
➡ The average percent return per winning trade was 68.4% over 7-days%.
➡ The average percent return per losing trade was -60.1% over 7-days%.
Note that the losses can be quite severe.
Is This Just Because Of a Bull Market?
It's a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."
The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days.
* Yes. We are empirical.
* Yes, you are better than the rest now that you know this.
* Yes, you are powerful for it.
Back-testing More Time Periods in Costco
Now we can look at just the last year as well:
| COST: Long 40 Delta Call | |||
| % Wins: | 100% | ||
| Wins: 4 | Losses: 0 | ||
| % Return: | 238% | ||
Tap Here to See the Back-test
We're now looking at 238% returns, on 4 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 49.4%.
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.
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.