Roku's Bullish Pattern Right Before Earnings, That Has Never Been Broken

Discussion in 'Options' started by CML_Ophir, Sep 17, 2018.

  1. CML_Ophir

    CML_Ophir

    Roku's Bullish Pattern Right Before Earnings, That Has Never Been Broken

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    Date Published: 2018-09-16

    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
    ROKU has only had four earnings releases since going public, but in that short-time, a pattern has emerged that has never been broken.

    The Bullish Option Trade Before Earnings in Roku Inc
    We will examine a back-test of getting long a two-week, out of the money (30 delta) call option in Roku Inc 5 trading days before earnings and selling the call before the earnings announcement.

    Here's the set-up in great clarity; note that the trade closes before earnings, so this trade does not make a bet on the earnings result because ROKU releases earnings after the market closes.


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    RESULTS
    Here are the results over the last one-year in Roku Inc:

    ROKU: Long 30 Delta Call

    % Wins: 100%
    Wins: 4 Losses: 0
    % Return: 169%

    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). ROKU isn't due to have it's next earnings release until early November, but you can set an alert for 5-trading days before the event, below:

    We see a 169% return, testing this over the last 4 earnings dates in Roku Inc. That's a total of just 24 days (6-days for each earnings date, over 4 earnings dates).

    Setting Expectations
    While this strategy had an overall return of 169%, the trade details keep us in bounds with expectations:
    ➡ The average percent return per trade was 68.4%.

    Is This Just Because Of a Bull Market?

    It's a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession."

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    The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days.

    * Yes. We are empirical.
    * Yes, you are better than the rest now that you know this.
    * Yes, you are powerful for it.


    What Happened
    There's a lot less luck to successful option trading than many people realize. Become the expert in the room. You can tap the link below to become that 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.