Swing Trading Bullish Tech Momentum With Options in Infosys Limited
Infosys Limited (NYSE:INFY): Swing Trading Bullish Tech Momentum
Date Published: 2018-07-01
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
Infosys Limited (NYSE:INFY) is a tech company based in India, trading on NYSE, and it has found a huge bullish run of late. But even before that, there has been, for 3-straight years, a pattern of bullish momentum just four days before earnings that is remarkable.
The company has earnings due out on 7-13-2018 before the market opens according to our data provider Wall Street Horizon, and four days before then would be Monday 7-9-2018 near the close of trading.
STOCK CHART
Here's an one-year stock chart:
The stock is up more than 35% since September of last year and is now right up against its multi-year high. Here is an expanded 3-year stock chart:
It's that $20 level that is up next -- a point of technical resistance.
The Short-term Option Swing Trade Ahead of Earnings in Infosys Limited
We will examine the outcome of going long a call option that is closest to one week from expiration 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.
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 stats over the last three-years in Infosys Limited:
| INFY: Long 40 Delta Call | |||
| % Wins: | 100% | ||
| Wins: 12 | Losses: 0 | ||
| % Return: | 275% | ||
Tap Here to See the Back-test
The mechanics of the TradeMachine® Stock Option Backtester 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 `INFY` 4 days before earnings
We see a 275% return, testing this over the last 12 earnings dates in Infosys Limited.
Setting Expectations
While this strategy has an overall return of 275%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 49.9% over each four-day period.
DISCOVERY
We found this tech momentum pattern using the S&P 500 as our ticker group and then looking at the "3 Days Pre-earnings Log Call." We then tweaked the back-test just a bit to look at 4-days before earnings and saw those historical results were better.
Looking at More Recent History
What's particularly interesting with this back-test is that the lion's share of the return has come from the last year.
| INFY: Long 40 Delta Call | |||
| % Wins: | 100% | ||
| Wins: 4 | Losses: 0 | ||
| % Return: | 262% | ||
Tap Here to See the Back-test
We're now looking at 262% returns, on 4 winning trades.
➡ The average percent return over the last year per trade was 65.3% over each four-day period.
WHAT HAPPENED
There's a lot less luck to successful option trading than most people realize. To learn more 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.