Intuit Inc

+3.74 (+1.45%)

People also watch

Swing Trading Earnings Bullish Momentum With Options in Intuit Inc

Intuit Inc (NASDAQ:INTU) : Swing Trading Earnings Bullish Momentum With Options

Date Published:

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.

The pre-earnings momentum rally has, largely, stayed on track this quarter -- which is to say, it's a probability based idea and so far, the odds are bearing fruit, yet again.

Today we look at a different version -- that is, a very short-term pre-earnings momentum pattern in a little known tech stock but the win rate over the last 3-years has been larger than any other company in the Nasdaq 100 for this type of back-test.

There is a pattern of bullish momentum in Intuit Inc (NASDAQ:INTU) stock just 3-days before earnings, and we can track that by looking at swing returns in the option market.

This is a short-term swing trade, it won't be a winner forever, and it can be easily derailed by a couple of down days in the market irrespective of Intuit Inc news, but for now it has shown a repeating success that has not only returned 252%, but has also shown a win-rate of 92%, with 11 wins and 1 loss.

Here is a two-year stock return chart for INTU:

This is a $39 billion tech company that operates as a provider of business and financial management solutions for small businesses, consumers and accounting professionals.

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.

That is, totally independent of whether the stocks have a pattern of beating earnings, in the 3 trading days before earnings, there is a small group that have risen sharply ahead of the actual news. It's essentially bullish optimism in a very short-term window.

According to our data provider, Wall Street Horizon, Intuit has earnings due out on Monday 11-20-2017. Three trading days before that date would be Wednesday 11-15-2017.

The Short-term Option Swing Trade Ahead of Earnings in Intuit Inc
We will examine the outcome of going long a weekly 40-delta call option in Intuit Inc just three trading 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.

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.

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.

We found Intuit by scanning the Nasdaq 100 for the top 3-day pre-earnings long call back-tests.

And here are the results, with Intuit showing the most wins of the entire index in this momentum back-test over the last 3-years.

Below we present the back-test stats over the last three-years in Intuit Inc:

INTU: Long 40 Delta Call

% Wins: 92%
Wins: 11 Losses: 1
% Return:  252.1% 

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 252.1% return, testing this over the last 12 earnings dates in Intuit Inc. That's a total of just 24 days (2-day holding period for each earnings date, over 12 earnings dates). That's the power of following the short-term pattern of bullishness ahead earnings -- and not taking on the actual risk from the earnings outcome.

This short-term trade hasn't won every time, and it won't, but it has been a winner 11 times and lost 1 times, for a 92% win-rate and again, that 252.1% return in less than one-full month of actual holding period.

Setting Expectations
While this strategy has an overall return of 252.1%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 21.48% over a two-day period.
      The average percent return per winning trade was 24.4% over a two-day period.
      The percent return for the losing trade was -10.5% over a two-day period.

We note the downside move was fairly muted, which is not a guarantee, but is compelling.

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

INTU: Long 40 Delta Call

% Wins: 75%
Wins: 3 Losses: 1
% Return:  41.1% 

Tap Here to See the Back-test

We're now looking at 41.1% returns, on 3 winning trades and 1 losing trades.
      The average percent return over the last year per trade was 20.35%.
      The average percent return over the last year per winning trade was 30.7%.

Bull markets tend to create optimism, whether it's deserved or not. 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.

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.