Electronic Arts Inc, EA, earnings, return, short-term, trade
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
There is a pattern of bullish momentum in Electronic Arts Inc (NASDAQ:EA) stock just 4-days before earnings, and we can track that by looking at swing returns in the option market.
Even further, there has been a recent pattern of large earnings beats and abrupt stock moves higher, and that has added to this bullish optimism before earnings. Here is an one year stock chart for EA:
The "E" icons represent earnings dates. Not only can we see the pre-earnings momentum, but we have highlighted two of the recent after earnings stock moves -- they were gaps up.
We will see a strong back-test over the last year, but if we just hone in on the pre-earnings momentum in the earnings lead up after the first big beat, so the July 28th event, this is what holding a call for 4-days did:
For this next earnings event, which is due for about a month, we have another big beat in the most recent earnings release. All of this data, as well as what we will discuss below, has made this a compelling case. Since the earnings date is several weeks out, setting an alert for this could be helpful.
IDEA
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 Electronic Arts Inc.
We will examine the outcome of going long a weekly call option in Electronic Arts Inc just four calendar days before earnings and selling the call on the day of earnings but before the actual news, since EA reports after the market closes. This is not an earnings trade - this does not take earnings risk.
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.
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
Below we present the back-test results over the last year in Electronic Arts Inc:
The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger).
➡ The average percent return over the last year per trade was 63.4%.
Trade Discovery
We found this back-test result by using the Trade Machine Pro™ scanner. We looked at the S&P 500 and started with the "3-days Pre-earnings Long Call Back-test" and then adjusted the days before to 4 (rather than 3) and the close to 0 days before, since EA does report after the market closes.
Is This Just Because Of a Bull Market?
This phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."
The average return for this strategy using a full week (7 days) before earnings, by stock, using the constituents of the NASDAQ 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days.
* Yes. We are empirical.
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.
A Pattern of Big Earnings Beats and Momentum in Electronic Arts Inc (NASDAQ:EA)
A Pattern of Big Earnings Beats and Momentum in >Electronic Arts Inc (NASDAQ:EA)
Date Published: 2018-03-20Disclaimer
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
There is a pattern of bullish momentum in Electronic Arts Inc (NASDAQ:EA) stock just 4-days before earnings, and we can track that by looking at swing returns in the option market.
Even further, there has been a recent pattern of large earnings beats and abrupt stock moves higher, and that has added to this bullish optimism before earnings. Here is an one year stock chart for EA:
The "E" icons represent earnings dates. Not only can we see the pre-earnings momentum, but we have highlighted two of the recent after earnings stock moves -- they were gaps up.
We will see a strong back-test over the last year, but if we just hone in on the pre-earnings momentum in the earnings lead up after the first big beat, so the July 28th event, this is what holding a call for 4-days did:
For this next earnings event, which is due for about a month, we have another big beat in the most recent earnings release. All of this data, as well as what we will discuss below, has made this a compelling case. Since the earnings date is several weeks out, setting an alert for this could be helpful.
Track this trade idea. Get alerted for ticker `EA` 4 days before earnings
IDEA
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 Electronic Arts Inc.
We will examine the outcome of going long a weekly call option in Electronic Arts Inc just four calendar days before earnings and selling the call on the day of earnings but before the actual news, since EA reports after the market closes. This is not an earnings trade - this does not take earnings risk.
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.
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
Below we present the back-test results over the last year in Electronic Arts Inc:
The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger).
Track this trade idea. Get alerted for ticker `EA` 4 days before earnings
➡ The average percent return over the last year per trade was 63.4%.
Trade Discovery
We found this back-test result by using the Trade Machine Pro™ scanner. We looked at the S&P 500 and started with the "3-days Pre-earnings Long Call Back-test" and then adjusted the days before to 4 (rather than 3) and the close to 0 days before, since EA does report after the market closes.
Is This Just Because Of a Bull Market?
This phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."
The average return for this strategy using a full week (7 days) before earnings, by stock, using the constituents of the NASDAQ 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days.
* Yes. We are empirical.
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.