Kroger Company (The), KR, earnings, option, before, stock
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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
In September we penned the article The Secret to Option Trading Before Earnings in Kroger Company (The).
Today, we reprise that back-test, as it continued in its pattern last quarter, and it's well worth discussing again, with earnings about two-weeks away, confirmed by our data provider, Wall Street Horizon, for 11-30-2017 before the market opens.
One-week before then would be 11-23-2017.
Story
It turns out, over the long-run, for stocks with certain tendencies like Kroger Company (The), there is a clever way to trade market anxiety or market optimism before earnings announcements with options.
This approach has returned 130.0% with a total holding period of just 60 days, or a annualized rate of 790.8%. Now that's worth looking into.
The Trade Before Earnings
What a trader wants to do is to see the results of buying an at the money straddle a few days before earnings, and then sell that straddle just before earnings. The goal is to benefit from a unique and very short time frame when the stock might move 'a lot', either due to earnings anxiety (stock drops before earnings) or earnings optimism (stock rises before earnings), but taking no actual earnings risk.
This trade is not a panacea, which is to say, we have to test it, stock by stock, to see when and why it worked. We start with Kroger Company (The).
Here is the setup:
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We are testing opening the position 7 calendar days before earnings and then closing the position 1 day before earnings. This is not making any earnings bet. This is not making any stock direction bet.
Once we apply that simple rule to our back-test, we run it on an at-the-money straddle:
Discovery
We found this back-test last time using the Trade Machine Pro Scanner, looking at the S&P 500 and the 7-day pre-earnings long straddle:
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Kroger shows that strong win rate and return and is in fact one of just six companies out of the entire S&P 500 to show 10 wins out of the last 12 pre-earnings cycles.
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Returns
If we did this long at-the-money (also called '50-delta') straddle in Kroger Company (The) (NYSE:KR) over the last three-years but only held it before earnings we get these results:
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 130.0% return, testing this over the last 12 earnings dates in Kroger Company (The). That's a total of just 60 days (5 days for each earnings date, over 12 earnings dates). That's a annualized rate of 790.8%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 10 times and lost 2 times, for a 83% win-rate and again, that 130.0% return in less than two-full months of trading.
Setting Expectations
While this strategy has an overall return of 130.0%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 14.39%.
Option Trading in the Last Year
We can also look at the last year of earnings releases and examine the results:
In the latest year this pre-earnings option trade has 3 wins and lost 1 times and returned 70.4%.
➡ Over just the last year, the average percent return per trade was 20.16%.
WHAT HAPPENED
This is it -- this is how people profit from the option market -- finding trading opportunities that avoid earnings risk and work equally well during a bull or bear market.
To see how to do this for any stock we welcome you to watch this quick demonstration video:
Tap Here to See the Tools at Work
Thanks for reading.
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.
Avoid Bear Market Risk: The Secret to Option Trading Before Earnings in Kroger Company (The)
Kroger Company (The) (NYSE:KR) : Avoid Bear Market Risk: The Secret to Option Trading Before Earnings
Date Published: 2017-11-13Disclaimer
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
In September we penned the article The Secret to Option Trading Before Earnings in Kroger Company (The).
Today, we reprise that back-test, as it continued in its pattern last quarter, and it's well worth discussing again, with earnings about two-weeks away, confirmed by our data provider, Wall Street Horizon, for 11-30-2017 before the market opens.
One-week before then would be 11-23-2017.
Story
It turns out, over the long-run, for stocks with certain tendencies like Kroger Company (The), there is a clever way to trade market anxiety or market optimism before earnings announcements with options.
This approach has returned 130.0% with a total holding period of just 60 days, or a annualized rate of 790.8%. Now that's worth looking into.
The Trade Before Earnings
What a trader wants to do is to see the results of buying an at the money straddle a few days before earnings, and then sell that straddle just before earnings. The goal is to benefit from a unique and very short time frame when the stock might move 'a lot', either due to earnings anxiety (stock drops before earnings) or earnings optimism (stock rises before earnings), but taking no actual earnings risk.
This trade is not a panacea, which is to say, we have to test it, stock by stock, to see when and why it worked. We start with Kroger Company (The).
Here is the setup:
We are testing opening the position 7 calendar days before earnings and then closing the position 1 day before earnings. This is not making any earnings bet. This is not making any stock direction bet.
Once we apply that simple rule to our back-test, we run it on an at-the-money straddle:
Discovery
We found this back-test last time using the Trade Machine Pro Scanner, looking at the S&P 500 and the 7-day pre-earnings long straddle:
Kroger shows that strong win rate and return and is in fact one of just six companies out of the entire S&P 500 to show 10 wins out of the last 12 pre-earnings cycles.
Returns
If we did this long at-the-money (also called '50-delta') straddle in Kroger Company (The) (NYSE:KR) over the last three-years but only held it before earnings we get these results:
| KR Long At-the-Money Straddle |
|||
| % Wins: | 83.33% | ||
| Wins: 10 | Losses: 2 | ||
| % Return: | 130.0% | ||
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 130.0% return, testing this over the last 12 earnings dates in Kroger Company (The). That's a total of just 60 days (5 days for each earnings date, over 12 earnings dates). That's a annualized rate of 790.8%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 10 times and lost 2 times, for a 83% win-rate and again, that 130.0% return in less than two-full months of trading.
Setting Expectations
While this strategy has an overall return of 130.0%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 14.39%.
Option Trading in the Last Year
We can also look at the last year of earnings releases and examine the results:
| KR Long At-the-Money Straddle |
|||
| % Wins: | 75.00% | ||
| Wins: 3 | Losses: 1 | ||
| % Return: | 70.4% | ||
In the latest year this pre-earnings option trade has 3 wins and lost 1 times and returned 70.4%.
➡ Over just the last year, the average percent return per trade was 20.16%.
WHAT HAPPENED
This is it -- this is how people profit from the option market -- finding trading opportunities that avoid earnings risk and work equally well during a bull or bear market.
To see how to do this for any stock we welcome you to watch this quick demonstration video:
Tap Here to See the Tools at Work
Thanks for reading.
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.