Four Pre-earnings Triggers for Bullish Bursts in the NASDAQ 100
Preface
With a full time job in research, it will be difficult for the next few weeks for me to get out multiple Pattern Finder / TradeMachine notes. But, there is a solution!
I can can go short and to the point.
Today we will look at four pre-earnings triggers that may be coming up.
The Set-up
These triggers come directly from TradeMachine’s scanner. Specifically, it’s the scan highlighted.
While we’re at it, you can see the list of pre-earnings scans we have, and we have post-earnings scans, and everything in between as well.
Further, TradeMachine can backtest nearly any strategy you can imagine, we just have a few dozen pre-computed for ease of use.
The set-up is two fold:
Look 7-days before confirmed earnings releases.
The stock must be above the 50-day simple moving average (SMA) on that day.
If those two requirements are met, this backtest fires; getting long a slightly out of the money call (40 delta) that expires after earnings.
The goal is take advantage of pre-earnings optimism; that is, bullishness (and therefore bullish flow) into the earnings event.
But, quite on purpose, this particular backtest does not hold through earnings. This is the set-up:
The open date is clear: seven-days prior to earnings.
The closing rule is equally clear: the day before earnings.
The alternative closing rule is a limit or stop loss:
So, to be clear, this trade stays open for six-days or if the option loses or gains 40% in value; whichever of those happen first.
Alright, here is a chart of the idea and then four backtests that are relevant.
Backtest Results
While there are 107 companies out of the 500 largest (by market cap) that have win rates and average returns in backtesting that qualify for our scanner, we will show four of them in the NASDAQ 100, and leave the rest for TradeMachine members to peruse:
We see AMAT, DDOG, ROST, and AAPL.
We see win rates, total returns, gains, and losses, all predicated on five contract trades and with $0.50 commissions per contract.
Of course, TradeMachine can backtest any number of contracts, even one, any commission schedule, and strategies far more complex than this, but this is a great example.
Alright, this is my best effort to deliver value today from this newsletter.
Conclusion
You can do this yourself incredibly easily in TradeMachine.
For those that want to learn more, or even watch an explanatory video, you can go here: TradeMachine - Discount
Thank for reading, friends.