Alphabet Inc Has a Remarkable Pre-Earnings Momentum Trade That Has Persisted for 3-years
Alphabet Inc (NASDAQ:GOOGL) : Trading Earnings Optimism With Options
Date Published: 2018-06-19
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
There "pre-earnings optimism phenomenon" has been well documented by Capital Market Laboratories and how is it has spanned both this bull market, and the Great Recession, before it.
But Alphabet Inc (NASDAQ:GOOGL) has momentum pattern that superseded even that phenomenon and it has persisted for a long time and takes a little patience.
There is no confirmed earnings date for Alphabet Inc yet, but Wall Street Horizon puts the unconfirmed date at 2018-07-23.
The Options Optimism Trade Before Earnings in Alphabet Inc
Let's look at the historical results of buying a monthly out of the money (30 delta) call option in Alphabet Inc 21 calendar days and selling the call before the earnings announcement.
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.
We note the use of a 30 day option so not to face total time decay on the options.
Here are the results over the last three-years in Alphabet Inc:
| GOOGL: Long 30 Delta Call | |||
| % Wins: | 91.7% | ||
| Wins: 11 | Losses: 1 | ||
| % Return: | 2165% | ||
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).
Track this trade idea. Get alerted for ticker `GOOGL` 21 days before earnings
We see a 2165% historical return, testing this over the last 12 earnings dates in Alphabet Inc.
We can also see that this strategy hasn't been a winner all the time, rather it has won 11 times and lost 1 time, for a 91.7% win-rate.
Setting Expectations
While this strategy had an overall return of 2165%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 108.4% over each 21-day period.
➡ The average percent return per winning trade was 121.4% over each 21-day period.
➡ The percent return for the losing trade was -34.6% over the 21-day period.
Checking More Time Periods in Alphabet Inc
Now we can look at just the last year as well:
| GOOGL: Long 30 Delta Call | |||
| % Wins: | 75% | ||
| Wins: 3 | Losses: 1 | ||
| % Return: | 535% | ||
Tap Here to See the Back-test
WHAT HAPPENED
There's a lot less luck to successful option trading than most people realize. To learn more 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.