The Short-term Option Momentum Pattern Ahead of Earnings in Intuit Inc
Intuit Inc (NASDAQ:INTU) : Short-term Option Swing Trade Ahead of Earnings
Date Published: 2018-08-02
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 is a pattern of bullish momentum in Intuit Inc (NASDAQ:INTU) stock just 3 trading days before earnings, and we can track that by looking at swing returns in the option market as far back as 5-years.The Short-term Option Swing Trade Ahead of Earnings in Intuit Inc
We will examine the outcome of going long a weekly call option in Intuit 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 five-years and then the last three-years in Intuit Inc:| INTU: Long 40 Delta Call (5 years) |
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| % Wins: | 80% | ||
| Wins: 16 | Losses: 4 | ||
| % Return: | 360% | ||
Tap Here to See the Back-test
| INTU: Long 40 Delta Call (3 years) |
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| % Wins: | 83% | ||
| Wins: 10 | Losses: 2 | ||
| % Return: | 222% | ||
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 `INTU` 3 days before earnings
We see a 222% return, testing this over the last 12 earnings dates in Intuit Inc. That's a total of just 24 days (2-day holding period for each earnings date, over 12 earnings dates).
This short-term trade hasn't won every time, and it won't, but it has been a winner 10 times and lost 2 times, for a 83% win-rate and again, that 222% return in less than one-full month of actual holding period.
Setting Expectations
While this strategy has an overall return of 222%, the trade details keep us in bounds with expectations:➡ The average percent return per trade was 20.6%.
➡ The average percent return per winning trade was 27.4%.
➡ The average percent return per losing trade was -12.9%.
Idea Discovery With 2-mouse Clicks
We simply looked at the NASDAQ 100 as our study group (one mouse click) and then looked at the "3 Days, Pre Long Call" scan (a second mouse click). That's it.
WHAT HAPPENED
The pattern of this bull market reveals a bullish run up before earnings in the very short-term. This has been a tradable phenomenon in Intuit Inc. To see how to test this for any stock we welcome you to watch the demonstration video.Tap Here, See for Yourself
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.