The ExOne Company (NASDAQ:XONE) : Pre-earnings Momentum Trade With a Technical Trigger
Date Published: 2019-02-27
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 bullish momentum pattern in The ExOne Company (NASDAQ:XONE) stock 3 trading days before earnings. Further, we use moving averages as a safety valve to try to avoid opening a bullish position while a stock is in a technical break down, like the fourth quarter of 2018.
The ExOne Company develops, manufactures, and markets three-dimensional (3D) printing machines, 3D printed and other products, materials, and services, and all of a sudden, that technology is making a comeback, or so peer stocks like SSYS appear to be doing.
The next earnings date for XONe is not verified, but it is estimated for 3-14-2019. Sometime before then we will get a verified date from the company, so this trigger is approaching. Set an alert in Trade Machine to get your trigger.
Option Back-tester: The Bullish Option Trade Before Earnings in The ExOne CompanyWe will examine the outcome of getting long a weekly call option in The ExOne Company 3-days before earnings (using trading days) and selling the call before the earnings announcement if and only if the stock price is above the 50-day simple moving average.
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.
And 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.
RESULTSHere are the results over the last five-years in The ExOne Company:
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).
Notice that while this is a 5-year back-test and we would expect four times that many earnings triggers (4 earnings per year makes 20), the technical requirement using the 50-day moving average has avoided 12 pre-earnings attempts. In other words -- it's working.
We can also see that this strategy hasn't been a winner all the time, rather it has won 6 times and lost 2 times.
Setting ExpectationsWhile this strategy had an overall return of 191%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 46.8%.
Checking the Moving AverageYou can check to see if the 50-day MA for XONE is above or below the current stock price by using the Pivot Points tab on www.CMLviz.com.
Back-testing More Time Periods in The ExOne Company
Now we can look at just the last year as well:
We're now looking at 263.4% returns, on 2 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 124.78%.
The backtester uses end of day data to force a structured open and close rule, so the stops and limits won't be exact. Perhaps the bigger impact is the fact that stocks gap from day to day and that can move the profit and loss well past the stop and limit setting. (That's how real-life trading works, not hypothetical.)
WHAT HAPPENEDThis is how people profit from the option market, its empirical testing, not luck. 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.