Oracle: A Trigger for the Short-term Swing Trade that Has a Marvelous History

Discussion in 'Options' started by CML_Ophir, Sep 10, 2018.

  1. CML_Ophir


    Oracle: A Trigger for the Short-term Swing Trade that Has a Marvelous History

    Date Published: 2018-09-10

    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.

    There is a pattern of bullish momentum in Oracle Corporation (NYSE:ORCL) stock just 3 trading days before earnings, that has not only shown exceptional results over the last 5-years, but also during the Great Recession.

    According to our data provider, Wall Street Horizon, Oracle next has earnings due out on 2018-09-17. Three trading days before then would be 2018-09-12, near the end of the day.

    The idea is quite simple -- trying to take advantage of a pattern in short-term bullishness just before earnings, and then getting out of the way so no actual earnings risk is taken. Now we can see it in Oracle Corporation.

    We will examine the outcome of going long a two-week call option in Oracle Corporation just three trading days before earnings and selling the call the day of earnings but before the actual news. Since Oracle reports earnings after the market closes, the back-test does not hold the risk of the earnings event.

    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.


    Often times we look at option set-ups that are longer-term, and take no directional bet -- this is not one of those times. This is a no holds barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk.

    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.

    Below we present the back-test stats over the last five-years in Oracle Corporation:

    ORCL: Long 40 Delta Call

    % Wins: 90%
    Wins: 18 Losses: 2
    % Return: 1225%

    Tap Here to See the Back-test
    The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).

    The trade will lose sometimes, and since it is such a short-term position, it can lose from news that moves the whole market that has nothing to do with Oracle Corporation, but over the recent history, this bullish option trade has won ahead of earnings.

    Setting Expectations
    While this strategy has an overall return of 1225%, the trade details keep us in bounds with expectations:

    ➡ The average percent return per trade was 40.2%.
    ➡ The average percent return per winning trade was 45.7%.
    ➡ The average percent return per losing trade was -9.3%.

    We have shown that this pre-earnings momentum pattern in the Nasdaq 100 and Dow 30 stocks has persisted and is statistically significant not just during this bull market, but also during the Great Recession.

    Here are the results from the seven pre-earnings periods during the worst part of the bear market. First we start by setting our custom dates:


    And then the results:
    ORCL: Long 40 Delta Call

    % Wins: 57.1%
    Wins: 4 Losses: 3
    % Return: 139%

    Tap Here to See the Back-test

    What Happened
    There's a lot less luck to successful option trading than many people realize. We mean that literally. Become the expert in the room -- or don't. You can tap the link below to become your own option expert.
    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.