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Swing Trading Earnings Bullish Momentum With Options in Dave & Buster's Entertainment Inc

Dave & Buster's Entertainment Inc (NASDAQ:PLAY) : Swing Trading Earnings Bullish Momentum With Options

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There is a remarkable pattern of bullish momentum in Dave & Buster's Entertainment Inc (NASDAQ:PLAY) stock just days before earnings that has persisted for every quarter that the company has been public.

This is a short-term swing trade, and even though it has won all 10 quarters PLAY has been public, it will not be a winner forever, and it can be easily derailed by a couple of down days in the market irrespective of Dave & Buster's Entertainment Inc. Having said that, for now it has shown a repeating success that has not only returned 331% over all ten earnings periods, and 96.5% returns over the last four earnings periods.

According to NASDAQ the next earnings date for PLAY is estimated to be 9-5-2017. That date will likely move around -- it is not confirmed yet by the company.

The idea is simple -- an attempt 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 Dave & Buster's Entertainment Inc.

The Short-term Option Swing Trade Ahead of Earnings in Dave & Buster's Entertainment Inc
We will examine the outcome of going long a monthly call option in Dave & Buster's Entertainment Inc just three calendar days before earnings and selling the call one day before the actual news.

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.

We further add a 40% stop loss and 40% limit gain on the back-test:

In English, if the calls are up or down by more than 40% prior to the end date, the trade is closed ahead of time.

Below we present the back-test stats over the last two-and-a-half-years in Dave & Buster's Entertainment Inc:

PLAY: Long 40 Delta Call

% Wins: 100%
Wins: 10 Losses: 0
% Return:  331% 

Tap here to see the back-test

We see a 331% return, testing this over the last 10 earnings dates in Dave & Buster's Entertainment Inc. That's a total of just 20 days (2-day holding period for each earnings date, over 10 earnings dates).

We note that the the 35 (or 30) delta calls actually returned 896% over that period, so stepping into further out of the money calls has done better.

The results make it feel like a foolproof plan, but it is not. There is no silver bullet in trading, it is just a bullish strategy in a very short-term window that has worked for the last two-and-a-half years.

Too much confidence can lead to taking too much risk -- every trade should have a tight risk control that is appropriate to each person's portfolio size, risk aversion and option trading knowledge. Please read the disclaimers at the end of this article for more details.

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 Dave & Buster's Entertainment Inc, but over the recent history, this bullish option trade has won ahead of earnings.

We also note that doing this long call 7 calendar days before earnings has also won all 10 times with a 314% return. You can see that back-test here: Tap to see the one-week back-test.

Setting Expectations
While this strategy has an overall return of 331%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 53.7%.

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

PLAY: Long 40 Delta Call

% Wins: 100%
Wins: 4 Losses: 0
% Return:  96.5% 

Tap here to see the back-test

We're now looking at 96.5% returns, on 4 winning trades and 0 losing trades. The 35 (or 30) delta calls returned 229%.
      The average percent return over the last year per trade was 39.1%.

If you like what you're reading, learn more about scientific option trading in a free webinar we are holding:

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Bull markets tend to create optimism, whether it's deserved or not. This has been a tradable phenomenon in Broadcom. 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.