The Repeating Pre-earnings Pattern in Netflix
The Repeating Pre-earnings Pattern in Netflix
Date Published: 2018-03-25Disclaimer
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.
PREFACE
There is a pattern of bullish momentum in Netflix Inc (NASDAQ:NFLX) stock just days before earnings that we have been following, repeatedly, for almost a year now.T This next earnings run may have yet even more of a boost.
With earnings now officially due out on 4-16-2018 after the market closes, it's time, yet again, to bookmark this date for further study. Yet further, if we look at an one-year chart for Netflix, and we highlight the earnings dates in green, we can see that the last event for Netflix created a spike higher -- that may lead to further optimism before. this next release.
TradeMachine uses calendar days, but has special handling for earnings that fall on Monday or Tuesday where the user has set earnings to trigger are less than or equal to 5 days before earnings. Since 4-16-18 is a Monday, "3-days" before would in fact be that Wednesday, 4-11-2018, near the market close.
The Short-term Option Swing Trade Ahead of Earnings in Netflix Inc
We will examine the outcome of going long a weekly call option in Netflix Inc just three trading days before earnings and selling the call one day before the actual news.
This is construct of the trade, noting that the short-term trade closes before earnings and therefore does not take a position on the earnings result.
RISK MANAGEMENT
We 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
Below we present the back-test stats over the last two-years in Netflix Inc:
| NFLX: Long 40 Delta Call | |||
| % Wins: | 100% | ||
| Wins: 8 | Losses: 0 | ||
| % Return: | 154% | ||
Tap Here to See the Back-test
The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger).
Track this trade idea. Get alerted for ticker `NFLX` 3 days before earnings
Setting Expectations
While this strategy has an overall return of 153.8%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 17.5% over each three-day period.
WHAT HAPPENED
Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical analysis or non-directional trades for any stock using empirical results rather than guesses, we welcome you to watch this quick demonstration video:
Tap Here to See the Tools at Work
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.