Under Armour: The Repeating Successful Swing Trade Right Before Earnings
Under Armour Inc (NYSE:UA) : Swing Trade Earnings Bullish Momentum With Options
Date Published: 2018-04-23Disclaimer
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
We have shown empirically, that there has been a long-term repeating pattern of bullish momentum in the week before earnings during both the Great Recession bear market and the last six-years of this bull market.
Our newest research reveals that this pattern is (statistically) significantly stronger if the prior earnings release results in the a stock pop of 5% or higher. 3 trading days before then would be 4-26-2018.
We have both of these phenomena with Under Armour Inc (NYSE:UA).
Here is a 3-month stock chart, we can see that latest pop from earnings:
According to our data provider, Wall Street Horizon, UA has earnings due out 05-01-2018 before the market opens, and
IDEA
The idea is quite simple -- trying to take advantage of a pattern in short-term bullishness just before earnings that has persisted during both the bear market from 2007-2008 and the bull market from 2012-2018, and then getting out of the way so no actual earnings risk is taken. Now we can see it in Under Armour Inc.
We examine the outcome of going long a weekly call option in Under Armour 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 two-years in Under Armour Inc:
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 `UA` 3 days before earnings
We see a 263.3% return, testing this over the last 7 earnings dates in Under Armour Inc. That's a total of just 21 days (3-day holding period for each earnings date, over 7 earnings dates).
Setting Expectations
While this strategy has an overall return of 263.3%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 49.6%.
➡ The average percent return per trade was 60.9%.
➡ The average percent return per trade was -17.7%.
Looking at More Recent History
We did a multi-year back-test above, now we can look at just the last year:
We're now looking at 231% returns, on 4 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 56.83%.
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:
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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.