JPMorgan Chase & Co (NYSE:JPM) : Custom Pre-earnings Bullish Diagonal Trigger
Date Published: 2022-07-30
DisclaimerThe results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
PrefaceToday we use the new and improved version of a pre-earnings momentum strategy. This goes beyond just naked long a call, and gives the opportunity for two shots at momentum with one trade.
This custom strategy has shown higher win rates per stock across the constituents of the NASDAQ 100 over the last 10-, 5-, 3-, 2-, and 1-year than the straight down the middle bullish momentum call. Let's take a look at the pattern in JPMorgan Chase & Co (NYSE:JPM) .
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LOGICThe logic behind the test is easy to understand -- in any market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the two-weeks before an earnings date. That phenomenon has been well documented by Capital Market Laboratories in our seminal webinar on market patterns.
Further, if this initial custom diagonal strategy fails due to lack of bullish momentum in the stock, it has a second chance built in without making another trade -- let the short-term leg expire, and keep holding the longer dated leg. Let's see it in action.
The goal is higher win rates than a straight down the middle naked call speculation.
The Bullish Option Trade Before Earnings in JPMorgan Chase & CoWe will examine the outcome of going long an at-the-money (strike price is set to the 50 delta) call option that has 14-days to expiry, and short an out-of-the-money (strike price set to the 30 delta) call option with 7-days to expiry. But we do all this starting 14-days before-earnings with the additional following rules:
* Custom Earnings Timing
This call time spread opens 14 calendar days before earnings:
* Use a technical trigger to start the trade, if and only if these specific items are met.
* The stock price is above the 50-day simple moving average:
Here it is in an image from Trade Machine -- only focus on the settings where the filter is turned to "on.":
You can set an alert in Trade Machine®, which will track all of these moving parts for you, and message you when it triggers. In fact, you can do this with a portfolio of stocks for a portfolio of bearish and bearish triggers. Let Trade Machine do the work for you -- there's no need to stare at the screen.
* Finally, here is how the custom strategy looks in Trade Machine:
Again, the set-up is opening the at the money call option that is closest to 14-days to expiry (but expires after the earnings date) and selling the out of the money call option that is closest to 7-days to expiry (but expires before the earnings date).
This entire trade closes after the 7-day options expire as it has been backtested. Here is the link to the custom strategy only available to Trade Machine members.
RESULTSHere are the results over the last three-years in JPMorgan Chase & Co:
The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).
This entire trade closes after the 7-day options expire as it has been backtested. But, there is an opportunity, if the trade fails, to hold the longer dated calls right up to the day of earnings and sell it right before, for those that want to take a second swing at the bullish pattern.
Checking the Moving AverageYou can check to see if the 50-day MA for JPM is above or below the current stock price by using the Pivot Points tab on www.MovingAverages.com.
Back-testing More Time Periods in JPMorgan Chase & Co
Now we can look at just the last year as well:
We're now looking at 92.3% returns, on 1 winning trades and 0 losing trades.
WHAT HAPPENEDTrade with more confidence. Trade better. Learn about Trade Machine®.
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.
You should read the Characteristics and Risks of Standardized Options.