Activision Blizzard, Inc (NASDAQ:ATVI) : Custom Pre-earnings Bullish Diagonal Trigger
Date Published: 2019-10-24
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.
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Trigger: Activision Blizzard (NASDAQ:ATVI) has earnings due out on 11-7-2019. 14-days before then would be today, 10-24-2019. That means a trigger fires if the stock stays above its 50-day moving average.
PrefaceThis custom strategy has shown higher win rates per stock across the constituents of the NASDAQ 100 over the last 10-, 5-, 3-, 2-, and 1-year than the straight down the middle bullish momentum call. Let's take a look at the pattern in Activision Blizzard, Inc (NASDAQ:ATVI) .
LOGICThe logic behind the test is easy to understand -- in an any market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the two-weeks before an earnings date. That phenomenon has been well documented by Capital market Laboratories in our seminal webinar on market patterns. Now we can see it in Activision Blizzard, Inc.
The Bullish Option Trade Before Earnings in Activision Blizzard, IncWe will examine the outcome of getting long a weekly call option in Activision Blizzard, Inc 14-days before earnings (using calendar 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 three-years in Activision Blizzard, Inc:
The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).
Notice that while this is a 3-year back-test and we would expect four times that many earnings triggers (4 earnings per year), the technical requirement using the 50-day moving average has avoided 5 pre-earnings attempts. In other words -- it's working.
We see a 167.7% return, testing this over the last 7 earnings dates in Activision Blizzard, Inc. That's a total of just 98 days (14-days for each earnings date, over 7 earnings dates).
Setting ExpectationsWhile this strategy had an overall return of 167.7%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 19.55%.
Checking the Moving AverageYou can check to see if the 50-day MA for ATVI is above or below the current stock price by using the Pivot Points tab on www.CMLviz.com.
Back-testing More Time Periods in Activision Blizzard, Inc
Now we can look at just the last year as well:
We're now looking at 64.2% returns, on 2 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 38.46%.
WHAT HAPPENEDFind tomorrow's options today. For that matter, find today's options today. Tap here to watch a quick video that will change your trading life for the better, forever.
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.
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