Micron Technology

NASDAQ:MU   1:53PM EDT
43.19
+0.16 (+0.37%)

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Micron Technology Inc: Momentum Comes in Short Bursts Ahead of Earnings



Micron Technology Inc: Momentum Comes in Short Bursts Ahead of Earnings

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.


This article can also be seen as a video, or as a full written document, below the video.:


Preface
There is a powerful pattern of optimism and momentum in Micron Technology Inc (NASDAQ:MU) stock right before of earnings -- it has been strengthening over the last two-years, and we can capture that pattern by looking at returns in the option market.


According to our earnings date data provider, Wall Street Horizon, Micron next has earnings due out on 3-22-2018 after the market closes, and 14 days before then would be 3-8-2018, near the market close.

The Options Optimism Trade Before Earnings in Micron Technology Inc
Let's look at the results of buying a two-week 40 delta (out of the money) call option in Micron Technology Inc two-weeks 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, so this trade does not make a bet 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.

Results
Here are the results over the last two-years in Micron Technology:

MU: Long Call

% Wins: 87.5%
Wins: 7 Losses: 1
% Return:  615% 

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 615% return, testing this over the last 8 earnings dates.

Track this trade idea. Get alerted for ticker `MU`  14 days before earnings

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Setting Expectations
While this strategy had an overall return of 615%, the trade details keep us in bounds with expectations:

      The average percent return per trade was 44.7% over each 14-day period.
      The average percent return per winning trade was 56.9% over each 14-day period.
      The average percent return for the losing trade was -40.9% over that 14-day period.

Back-test Discovery
We used the Trade Machine Pro™ scanner, looking at the NASDAQ 100 companies and the "14-days pre-earnings long call" strategy.



And we saw these results looking at the last year:



These are the results over the last year:

MU: Long Call

% Wins: 75%
Wins: 4 Losses: 0
% Return:  205% 

Tap Here to See the Back-test



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.