Intel Corporation (NASDAQ:INTC) : The One-Week Pre-earnings Momentum Trade With Options
Date Published: 2018-06-13
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.
Intel Corporation (NASDAQ:INTC) has become the new old tech momentum stock. Once left for dead, it's now entering new burgeoning markets like the cloud, and even the GPU market, dominated by Nvidia.
All of that recent movement has created a booming stock, and even better, a strong bullish momentum pattern 7 calendar days before earnings that we can capture explicitly by looking at returns in the option market.
Here is a multi-year stock chart of Intel stock -- note the dead period, and the recent 'awakening.'
In fact, Intel is up over 70% in the last 2-years, outpacing even the roaring Nasdaq 100 (up 63%). Intel normally releases earnings near the end of July, so to replicate this back-test, the trade would open near the middle of July. You can set an alert (below in the article) to get a notification.
This same strategy also worked in the throes of the bear market from 2007-2008, and we discuss those results near the finale of this article.
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. Now we can see it in Intel Corporation.
We will examine the outcome of getting long a two-week out of the money (40 delta) call option in Intel Corporation 7-days before earnings (using calendar days) and selling the call before the earnings announcement.
Here's the set-up in great clarity; again, note that since Intel reports after the market closes the trade in this back-test closes before earnings, so this trade does not make a bet on the earnings result.
Here are the results over the last two-years in Intel Corporation:
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).
The trade will lose sometimes, but over the most recent trading history, this momentum and optimism options trade has won ahead of earnings.
While this strategy had an overall return of 465%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 59.4% over each 8-day period.
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 7 days.
* Yes. We are empirical.
* Yes, you are better than the rest now that you know this.
* Yes, you are powerful for it.
Back-testing More Time Periods in Intel Corporation
Now we can look at just the last year as well:
➡ The average percent return over the last year per trade was 46.7% over each 8-day period.
Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical or non-directional trades for any stock, we welcome you to watch this quick demonstration video:
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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.