Constellation Brands Inc

+2.26 (+1.08%)

People also watch

Swing Trading Earnings in Constellation Brands Inc

Constellation Brands Inc (NYSE:STZ) : 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.

There is a pattern of bullish momentum in Constellation Brands Inc (NYSE:STZ) stock just days before earnings, and we can track that by looking at swing returns in the option market.

Constellation Brands is not a tech name and gets little hype, but if we look at the stock chart, it does mirror many of the momentum tech names we discuss:

According to our data provider, Wall Street Horizon, STZ has earnings due out on January 5th, before the market opens. Three trading days before that would be January 2nd. Now we turn to analysis of a short-term swing back-test before earnings.

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.

The Short-term Option Swing Trade Ahead of Earnings in Constellation Brands Inc
We will examine the outcome of going long a weekly call option in Constellation Brands 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 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 this back-test using the Trade Machine Pro scanner, looking at the S&P 500 and the "3 days pre-earnings long call" scan.

And here are the results:

We note not just the two-year results, but also the last year, with 4 winners and 0 losers.

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

STZ: Long 40 Delta Call

% Wins: 75%
Wins: 6 Losses: 2
% Return:  164% 

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 164% return, testing this over the last 8 earnings dates in Constellation Brands Inc. That's a total of just 24 days (3-day holding period for each earnings date, over 8 earnings dates).

This short-term trade hasn't won every time, and it won't, but it has been a winner 6 times and lost 2 times, for a 75% win-rate

Setting Expectations
While this strategy has an overall return of 164%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 23.2% over 3-days.
      The average percent return per winning trade was 36.4% over 3-days.
      The average percent return per losing trade was -16.2% over 3-days.

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

STZ: Long 40 Delta Call

% Wins: 100%
Wins: 4 Losses: 0
% Return:  63.9% 

Tap Here to See the Back-test

We're now looking at 63.9% returns, on 4 winning trades and 0 losing trades.
      The average percent return over the last year per trade was 20.9%.

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.