Shopify Inc

NYSE:SHOP   4:00PM EDT
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+3.62 (+1.80%)

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Option Backtester The Technical Trigger to Find Bullish Bursts in Shopify



Stock Option Backtester The Technical Trigger to Find Bullish Bursts in Shopify


Date Published:

Disclaimer

The 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.


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Today we demonstrate the technical conditions that, when met, have provided a strong bullish trigger for SHOP. These are the exact same conditions that we have implemented for backtests on Advanced Micro Devices (AMD).


Preface

Recently we 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.

With that, we build a portfolio of alerts. Here are a selection of recent insights.

* 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).

The goal is to create a portfolio of backtests with alerts attached to them, so we don't have to stare at the screen all day, but rather Trade Machine is the work horse to notify when the ideas become actionable.

The Short-term Bullish Option Trade in Shopify

We will examine the outcome of going long an out-of-the-money (strike price is set to the 40 delta) call option, in options that are the closest to 14-days from expiration. But we follow three rules:

* Never Trade Earnings

Here it is, first, we enter the long call and avoid earnings.



* Use a technical trigger to start the trade, if and only if these specific items are met. As of this writing, 2-21-2019, the conditions are not yet satisfied.

* Wait until the day that the stock price crosses above the 10-day moving average (DMA).
* The stock price is also above the 200 DMA.
* Finally, to prevent a trigger during an overbought period, we set the RSI (using 20-days) below 70.

Here is a nice simple image of the technical requirement:



You can set an alert in Trade Machine®, which will track all of these moving parts for you, and message you when it triggers. In fact, you can do this with a portfolio of stocks for a portfolio of bullish and bearish triggers. let Trade Machine do the work for you -- there's no need to stare at the screen.

* Finally, we set a very specific type of limit:

* Use a 25% limit and a 40% stop.



At the end of each day, the back-tester checks to see if the long call is up 25% or down 40%. If it is, it closes the position.

RESULTS FROM THE OPTION BACKTESTER

Here are the results over the last three-years in Shopify. You can see the exact set-up to replicate it in Trade Machine by tapping this link.

3-years using 14-day options
SHOP: Long 40 Delta call

% Wins: 55.8%
Wins: 24 Losses: 19
% Return:  1151% 

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).

An alternative is to use the same back-test, but use monthly options (closest to 30 days rather than 14-days):

3-years using 30-day options
SHOP: Long 40 Delta call

% Wins: 62.2%
Wins: 23 Losses: 14
% Return:  377% 

Tap Here to See the Back-test

You'll see a higher win rate, with a lower total return. You will also see fewer trades using the 30-day options because they span periods (are open during periods) that would have triggered another 14-day trade.

Checking the Moving Average

You can check moving averages for SHOP on the Pivot Points tab on www.CMLviz.com.

Back-testing More Time Periods in Shopify

Now we can look at the six-months from 2018-07-01 through 2018-12-31. SHOP stock was down 10.7% during that time period, but getting bullish at the right times was unscathed:

SHOP: Long 40 Delta call

% Wins: 71.4%
Wins: 5 Losses: 2
% Return:  210% 

Tap Here to See the Back-test


For completeness, we can also look at the last two-years:

2-years using 14-day options
SHOP: Long 40 Delta call

% Wins: 66.7%
Wins: 20 Losses: 10
% Return:  812% 

Tap Here to See the Back-test


And, again, here is the alternative, using 30-days options instead of 14-days options:

2-years using 30-day options
SHOP: Long 40 Delta call

% Wins: 73.1%
Wins: 19 Losses: 7
% Return:  689% 

Tap Here to See the Back-test


You'll see a higher win rate, with a lower total return with fewer trades using the 30-day options.

WHAT HAPPENED: Option Backtester

Be methodical.
Tap here to see it for yourself

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.