Akamai Technologies

NASDAQ:AKAM   3:59PM EDT
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The Momentum Pattern in Akamai Technologies That No One is Talking About



The Momentum Pattern in Akamai Technologies That No One is Talking About

Date Published:

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
We just experienced the continuation of what very well may be the most powerful bullish pattern in the market over the last 4-years -- Microsoft's pre-earnings momentum. It took just two-days for that pattern to turn into yet another 60% winner.

And while just betting on a continued bull market is far too risky and an option portfolio requires diversification, it is also foolhardy not to at least recognize the trend. Here's a gem even fewer people seem to have realized.

There bullish momentum pattern in Akamai Technologies Inc (NASDAQ:AKAM) stock 7 calendar days before earnings has been simply breathtaking.

According to our earnings date provider, Wall Street Horizon, Akamai next has earning due out on 2-6-2018 after the market closes. 7-days before then would be Tuesday, January 30th near the market's close.

CAUTION
We must address a note of caution. With the market rising so far so fast and a back-test that looks so good, it can be easy to make more of a result than should be. This is a historical pattern that has continued, but there is no sure thing in finance, ever. Now, let's get to the remarkable results.

LOGIC
The logic behind the option trading backtest is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date. But, there are only two companies with a string this long -- the other is Microsoft, which just completed, remarkably, its 15th consecutive quarter of pre-earnings momentum. Now we can see it in Akamai Technologies Inc.

The Bullish Option Trade Before Earnings in Akamai Technologies Inc
We will examine the outcome of getting long a weekly call option in Akamai Technologies Inc 7-days before earnings (using calendar days) and selling the call before the earnings announcement.

Here's the set-up in great clarity; again, note that the trade closes before earnings because AKAM reports after the market closes, so this trade does not make a bet on the earnings result.



RISK MANAGEMENT
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.

RESULTS
Here are the results over the last three and a half years in Akamai Technologies Inc:

AKAM: Long 40 Delta Call

% Wins: 100%
Wins: 14 Losses: 0
% Return:  628% 

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 628% return, testing this over the last 14 earnings dates in Akamai Technologies Inc. That's a total of just 98 days (7-days for each earnings date, over 14 earnings dates).

The trade will lose sometimes, but over the most recent trading history, this momentum and optimism options trade has won ahead of earnings.

Setting Expectations
While this strategy had an overall return of 628%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 45%.

Back-testing More Time Periods in Akamai Technologies Inc
Now we can look at just the last year as well:

AKAM: Long 40 Delta Call

% Wins: 100%
Wins: 4 Losses: 0
% Return:  145% 

Tap Here to See the Back-test

We're now looking at 145% returns, on 4 winning trades and 0 losing trades. It's worth noting again that we are only talking about one-week of trading for each earnings release, so this is 145% in just 4-weeks of total trading.

      The average percent return over the last year per trade was 41.8%.

WHAT HAPPENED
Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical analysis or non-directional trades for any stock using empirical results rather than guesses, 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.