Marriott International, MAR, earnings, option, bullish
The One-Week Pre-earnings Momentum Trade With Options in Marriott International
Marriott International (NASDAQ:MAR): The One-Week Pre-earnings Momentum Trade With Options
We've looked at a lot of these bullish pre-earnings trades, and this is one more. The win rate is remarkable as are the average returns. Eventually this trend
will stop working, of that we can be sure, and then we will look to other trends, but for now, we'll keep writing these up as we see them.
There is a bullish momentum pattern in Marriott International (NASDAQ:MAR) stock 7 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market.
According to NASDAQ, Marriott has earnings due out 8-7-2017 after the market closes.
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 Marriott International.
The Bullish Option Trade Before Earnings
We will examine the outcome of getting long a monthly call option in Marriott International 7-days before earnings (using calendar days) and selling the call before the day of the earnings announcement. We note that since MAR reports earnings after the market closes, this back-test is still not taking earnings risk -- it closes at the end of the trading day of earnings, which does not take earnings risk.
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.
Here are the results over the last three-years in Marriott International:
We see a 573% return, testing this over the last 11 earnings dates. That's a total of just 77 days (7-days for each earnings date, over 11 earnings dates). This has been the results of following the trend of bullish sentiment into earnings while avoiding the actual earnings result.
While this strategy had an overall return of 573%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 61.6%.
Back-testing More Time Periods in Marriott International
Now we can look at just the last year as well:
We're now looking at 156% returns, on 3 winning trades and 0 losing trades. It's worth noting again that we are only talking about one-week of trading for each earnings release, so this is 156% in just 4-weeks of total trading.
➡ The average percent return over the last year per trade was 46.7%.
Bull markets tend to create optimism, whether it's deserved or not.
The pattern of this bull market reveals a bullish run up before earnings in the very short-term (one-week) -- independent of the realized earnings result. This has been a tradable phenomenon in Quintiles Transitional Holdings Inc.
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.