Infosys Ltd

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Trading Infosys Four-Days Before Earnings to Capture Bullish Momentum

Trading Infosys Limited Four-Days Before Earnings to Capture Bullish Momentum

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 New Year is upon us, and now it's time to prepare. We start with a tech company that has seen bullish pre-earnings momentum for 3-consecutive years without a losing trade. Infosys Limited is engaged in consulting, technology, outsourcing and next-generation services and has a $37 billion market cap as of the time of publication according to Google Finance.

Infosys Limited (NYSE:INFY) has earnings due out on January 12th, before the market opens, according to our data provider Wall Street Horizon.

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. Now we can see it in Infosys Limited.

The Short-term Option Swing Trade Ahead of Earnings in Infosys Limited
We will examine the outcome of going long a weekly call option in Infosys Limited just four 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 we be conscious of the risk and that this trade will fail if the stock goes down in this short-time period.

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.

Below we present the back-test stats over the last three-years in Infosys Limited:

INFY: Long 40 Delta Call

% Wins: 100%
Wins: 12 Losses: 0
% Return:  131% 

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).

Setting Expectations
While this strategy has an overall return of 131%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 37.2%.

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

INFY: Long 40 Delta Call

% Wins: 100%
Wins: 4 Losses: 0
% Return:  98% 

Tap Here to See the Back-test

We're now looking at 98% returns, on 4 winning trades and no losing trades.

      The average percent return over the last year per trade was 26.5%.

Bull markets tend to create optimism, whether it's deserved or not. To see how to test this for any stock, and to discover the tech names with this tendency for this bullish momentum right before earnings, 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.