Stock Option Backtester MongoDB Inc (NASDAQ:MDB) : Pre-earnings Momentum Stock Option Trade With a Technical Trigger
Date Published: 2019-02-04
DisclaimerThe results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
LedeMongoDB is the leading, modern, general purpose database platform and the stock had an historic run from early 2018 through January of 2019.
But, within that run, a pattern emerged.
PrefaceRecently we wrote on several bullish and bearish triggers for one goal:
Build a portfolio of option set-ups, diversified not just by ticker, but by strategy. It's in this process that we uncover the times were short bursts of risk exposure have been profitable in the past.
A portfolio of the same strategy in several stocks isn't really diversified, it's just the same risk taken over and over again. This is the start of a portfolio:
* The Bearish Trigger in Micron Technology (MU).
* The Bullish Trigger in Advanced Micro Devices (AMD).
* The Bearish Trigger in Alibaba (BABA).
* The Bearish Trigger in Nvidia (NVDA).
* The Bullish Trigger in Nvidia (NVDA).
* The Bearish Trigger in Netflix (NFLX).
* The Bullish Trigger in Amazon.com (AMZN).
Use Trade Machine to set alerts for all the triggers you find -- let it do the work rather than you having to stare at the screen all day. Emails (or texts) when triggers fire -- Trade Machine watches the market for you.
Here is stock chart for MDB with the 50 day moving average (DMA) in black and earnings dates denoted with green "E" icons.
We can see the bullish momentum pattern in MongoDB Inc (NASDAQ:MDB) stock 3 trading days before earnings.
The Bullish Option Trade Before Earnings in MongoDB IncWe will examine the outcome of getting long a weekly out of the money call option (using 40 delta as the strike price) in MongoDB Inc 3-days before earnings (using trading days) if and only if the stock price is above the 50-day simple moving average, 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.
Here is the technical requirement -- note only one is "turned on," and that is the 50-day moving average requirement.:
If the stock price fails the technical requirement, it's fine, we just put a pin in it and check next quarter.
RISK MANAGEMENTWe 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 FROM THE OPTION BACKTESTERHere are the results over the last years in MongoDB Inc:
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 strategy had an overall return of 184.1%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 35.3%.
Checking the Moving AverageYou can check to see if the 50-day MA for MDB is above or below the current stock price by using the Pivot Points tab on www.CMLviz.com.
WHAT HAPPENED: Option BacktesterThis is how people profit from the option market, its empirical testing, not luck. Now it's your turn.
Tap here to see it for yourself
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.