Apple Inc

NASDAQ:AAPL   4:00PM EDT
156.82
+0.96 (+0.62%)

People also watch

Trading Earnings Optimism With Options in HealthEquity Inc

Trading Earnings Optimism With Options in HealthEquity Inc



HealthEquity Inc (NSDQ:HQY) : Trading Earnings Optimism With Options


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

There is a powerful pattern of optimism and momentum in HealthEquity Inc (NSDQ:HQY) stock right before of earnings, and we can capture that pattern by looking at returns in the option market. The strategy won't work forever, but for now it is a momentum play that has not only returned 2,594% annualized returns, but has also shown a high win-rate of 67%.

PREMISE

The 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 two-weeks before an earnings announcement. Now we can see it in HealthEquity Inc.



The Options Optimism Trade Before Earnings in HealthEquity Inc

Let's look at the results of buying a monthly call option in HealthEquity 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.



Now, unlike many of our other set-ups, this is in fact a straight down the middle bullish bet -- this absolutely takes on directional stock risk, so let's be conscious of that before we see the results, because they are mind bending.

Here are the results over the last three-years in HealthEquity Inc:

HQY: Long Call

% Wins: 67%
Wins: 8 Losses: 4
% Return:  1194% 

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).



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

Ticker

 
Email

 
Phone
(optional for text alerts)
 

 

A free service courtesy of cmlviz.com


We see a 1194% return, testing this over the last 12 earnings dates in HealthEquity Inc. That's a total of just 168 days (14 days for each earnings date, over 12 earnings dates). That's an annualized rate of 2,594%. That's the power of following the trend of optimism into earnings -- and never even worrying about the actual earnings result.

We can also see that this strategy hasn't been a winner all the time, rather it has won 8 times and lost 4 times, for a 67% win-rate and again, that 1194% return in less than six-full months of trading.

Setting Expectations

While this strategy had an overall return of 1194%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 66.83%.


( ! ) Warning: include(mid_article_include.php): failed to open stream: No such file or directory in C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20190111_trading-earnings-optimism-with-options-in-healthequity-inc.html on line 144
Call Stack
#TimeMemoryFunctionLocation
10.0000276520{main}( )..\research.php:0
20.7790749888include_once( 'C:\wamp\www\www.cmlviz.com\cmld3b\news_db.php' )..\research.php:292
30.7790766040include( 'C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20190111_trading-earnings-optimism-with-options-in-healthequity-inc.html' )..\news_db.php:77

( ! ) Warning: include(): Failed opening 'mid_article_include.php' for inclusion (include_path='C:/wamp/www/www.cmlviz.com/cmld3b/') in C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20190111_trading-earnings-optimism-with-options-in-healthequity-inc.html on line 144
Call Stack
#TimeMemoryFunctionLocation
10.0000276520{main}( )..\research.php:0
20.7790749888include_once( 'C:\wamp\www\www.cmlviz.com\cmld3b\news_db.php' )..\research.php:292
30.7790766040include( 'C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20190111_trading-earnings-optimism-with-options-in-healthequity-inc.html' )..\news_db.php:77

Checking More Time Periods in HealthEquity Inc

Now we can look at just the last year as well:

HQY: Long Call

% Wins: 75.00%
Wins: 3 Losses: 1
% Return:  451.1% 

Tap Here to See the Back-test

We're now looking at 451.1% returns, on 3 winning trades and 1 losing trades. It's worth noting again that we are only talking about two-weeks of trading for each earnings release, so this is 451.1% in just 8-weeks of total trading which annualizes to 2,940%.
      The average percent return over the last year per trade was 99.18%.

WHAT HAPPENED

The personality of this bull market is one that shows optimism before earnings -- irrespective of the actual earnings result. That has been a tradable phenomenon in HealthEquity Inc.

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.