Alarm.com Holdings Inc
NASDAQ:ALRM 3:03:56 PM EDT
82.09
+1.83
(+2.28%)
Alarm.com Holdings Inc, ALRM, earnings, trade, return, bullish
Disclaimer
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
Alarm.com Holdings Inc (NASDAQ:ALRM) has been a "fly under the radar" momentum tech stock, and that momentum has been yet stronger ahead of earnings.
The company has earnings due out on 2-27-2018 after the market closes and 6-days before then would be 2-21-2018 near the market close.
LOGIC
The logic behind the option trading backtest is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date.
We will examine the outcome of getting long a weekly at the money (also called '50 delta') call option in Alarm.com Holdings Inc 6-days before earnings (using calendar days) and selling the call before the earnings announcement -- that is on he day of earnings but since the company announces after the market closes, there is still no earnings event risk taken in this back-test.
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.
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
Here are the results over the last two-years in Alarm.com Holdings Inc:
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).
We see a 605% return, testing this over the last 8 earnings dates in Alarm.com Holdings Inc.
The trade will lose sometimes, but over the most recent trading history, this momentum and optimism options trade has won ahead of earnings.
Setting Expectations
While this strategy had an overall return of 605%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 40.1%.
➡ The average percent return per winning trade was 53%.
➡ The percent return for the losing trade was -50%.
Note that when this lost, it was a big loser. This is a risky momentum back-test.
Is This Just Because Of a Bull Market?
It's a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."
The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 6 days.
* Yes. We are empirical.
* Yes, you are better than the rest now that you know this.
* Yes, you are powerful for it.
We are also holding a free webinar to demonstrate this idea in great detail. To register for that free webinar, you can go here: Discover Volatile Market Trading Results -- Become a master, and leave the fear behind.
Back-testing More Time Periods in Alarm.com Holdings Inc
Now we can look at just the last year as well:
Tap Here to See the Back-test
We're now looking at 72% returns, on 3 winning trades and 1 losing trade.
➡ The average percent return over the last year per trade was 15.1%.
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.
The Powerful One-Week Pre-earnings Momentum in Alarm.com Holdings Inc
Alarm.com Holdings Inc (NASDAQ:ALRM) : The One-Week Pre-earnings Momentum Trade With Options
Date Published: 2018-02-21Author: Ophir Gottlieb
Disclaimer
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
Alarm.com Holdings Inc (NASDAQ:ALRM) has been a "fly under the radar" momentum tech stock, and that momentum has been yet stronger ahead of earnings.
The company has earnings due out on 2-27-2018 after the market closes and 6-days before then would be 2-21-2018 near the market close.
LOGIC
The logic behind the option trading backtest is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date.
We will examine the outcome of getting long a weekly at the money (also called '50 delta') call option in Alarm.com Holdings Inc 6-days before earnings (using calendar days) and selling the call before the earnings announcement -- that is on he day of earnings but since the company announces after the market closes, there is still no earnings event risk taken in this back-test.
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.
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
Here are the results over the last two-years in Alarm.com Holdings Inc:
| ALRM: Long 50 Delta Call | |||
| % Wins: | 87.5% | ||
| Wins: 7 | Losses: 1 | ||
| % Return: | 605% | ||
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 `ALRM` 6 days before earnings
We see a 605% return, testing this over the last 8 earnings dates in Alarm.com Holdings Inc.
The trade will lose sometimes, but over the most recent trading history, this momentum and optimism options trade has won ahead of earnings.
Setting Expectations
While this strategy had an overall return of 605%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 40.1%.
➡ The average percent return per winning trade was 53%.
➡ The percent return for the losing trade was -50%.
Note that when this lost, it was a big loser. This is a risky momentum back-test.
Is This Just Because Of a Bull Market?
It's a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."
The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 6 days.
* Yes. We are empirical.
* Yes, you are better than the rest now that you know this.
* Yes, you are powerful for it.
We are also holding a free webinar to demonstrate this idea in great detail. To register for that free webinar, you can go here: Discover Volatile Market Trading Results -- Become a master, and leave the fear behind.
Back-testing More Time Periods in Alarm.com Holdings Inc
Now we can look at just the last year as well:
| ALRM: Long 50 Delta Call | |||
| % Wins: | 75.00% | ||
| Wins: 3 | Losses: 1 | ||
| % Return: | 72% | ||
Tap Here to See the Back-test
We're now looking at 72% returns, on 3 winning trades and 1 losing trade.
➡ The average percent return over the last year per trade was 15.1%.
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.