Starbucks Corporation (NASDAQ:SBUX) : Option Backtester The Exact Trigger that Indicates Volatility
Date Published: 2019-02-18
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.
PrefaceThere is a trigger in Starbucks Corporation (NASDAQ:SBUX) that has preceded a large stock move in the past and it's time to take a look.
Simply owning puts and calls together, like a straddle, can be a huge winner, as it was at the end of 2018. But, equally, it has been a losing strategy outside of that time frame. So, the need has arisen -- an empirical and structured trigger that indicates when a large stock move is coming so owning a straddle has a higher probability of succeeding.
There is such a technical condition, and we will review it, right now.
PortfolioAs a reminder, we recently wrote on other technical set-ups. We look into both 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 identify the times were short bursts of risk exposure have been profitable in the past.
* The Bullish Trigger in Palo Alto Networks (PANW).
* The Bullish Trigger in Google (GOOGL).
* The Bearish Trigger in Twitter (TWTR).
* The Bearish Trigger in Micron (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 (AMZN).
But don't waste your precious time staring at the screen -- set an alert, and let Trade Machine alert you whenever a trigger you follow is hit.
Option Backtesting The Short-term Option Volatility Trade in Starbucks CorporationWe will examine the outcome of going long a short-term at-the-money (50 delta) straddle (buying an at the money call and buying an at the money put), in options that are the closest to 14-days from expiration. But we follow three rules:
* Never Trade Earnings
Let's not worry about stock direction or earnings, let's try to find a back-test that benefits from volatility. Here it is, first, we enter the long straddle.
* Use a technical trigger to start the trade, specifically:
Wait until the day that the stock price crosses below the 200-day moving average and the stock price is below the 10-day moving average. Here is a nice simple image of the technical requirement:
* Finally, we set a very specific type of limit:
* Use a 20% limit
* Close the trade after 10 days, if the limit has not been hit.
At the end of each day, the back-tester checks to see if the long straddle is up 20%. If it is, it closes the position. If after 10 trading days the limit has not been hit, the straddle is closed.
RESULTSHere are the results over the last ten-years in Starbucks Corporation:
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 455%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 24.1%.
Checking the Moving AverageYou can check to see the moment a stock dips below the 200-day MA for SBUX on the Pivot Points tab on www.CMLviz.com.
Back-testing More Time Periods in Starbucks CorporationNow we can look at just the last year as well:
➡ The average percent return over the last year per trade was 49.6%.
WHAT HAPPENEDStock and option backtesting with technical analysis through Trade Machine gives you the capacity to trade beyond luck.
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.