NVIDIA Corporation (NASDAQ:NVDA) : Trading Earnings Optimism With Options
Date Published: 2018-07-19
DisclaimerThe 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.
PrefaceGiven a little bit of time to manifest, a pre-earnings momentum pattern in Nvidia Corporation (NASDAQ:NVDA) has won for 8 straight quarters.
Nvidia has earnings due out on 2018-08-16, according to our data provider Wall Street Horizon. 21-days before then would be 2018-07-26.
PREMISEThe premise is simple -- one of the least recognized but most important phenomena surrounding this bull market is the amount of optimism, or upward momentum, that sets in the weeks before an earnings announcement. Now we can see it in NVIDIA Corporation.
The Options Optimism Trade Before Earnings in NVIDIA CorporationLet's look at the results of buying an out of the money monthly call option in NVIDIA Corporation 21-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, so this trade does not make a bet on the earnings result.
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).
Setting ExpectationsWhile this back-test had an overall return of 872%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 57.8% over each 21-day period.
Checking More Time Periods in NVIDIA CorporationNow we can look at just the last year as well:
➡ The average percent return over the last year per trade was 55.6% over each 21-day period.
WHAT HAPPENEDThere is empirical evidence of repeating patterns and this has been one of them. To learn more watch the first 70 seconds of the video on the page below -- that alone could change your view of trading, forever:
Tap Here to See the Tools at Work
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.