The Pattern in Apple That Only CML is Talking About

Discussion in 'Options' started by CML_Ophir, Oct 3, 2018.

  1. CML_Ophir


    The Pattern in Apple That Only CML is Talking About


    Date Published: 2018-10-03

    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 bullish momentum pattern in Apple Inc (NASDAQ:AAPL) stock 1 trading day after earnings, if and only if the stock showed a large gap up after the actual earnings announcement and it has never lost in 5-years, and has shown a 110% return during the 2007-2009 period that includes the Great Recession.

    We published this research on June 8th, in the dossier Pattern Identification: How to Trade Apple After an Earnings Beat.

    About 7 weeks later Apple reported earnings, it did meet the criterion for the back-test (discussed below), and the day after that the pattern took off again, returning 118% in a single day.

    This is a conditional entry -- the company reports earnings and if the stock move off of that report is a 3% gain or larger, then a bullish position is back-tested looking for continuing momentum in a short window to follow.

    Apple Inc (NASDAQ:AAPL) Earnings
    In Apple Inc, if the stock move immediately following an earnings result was large (3% or more to the upside), if we test waiting one-day after that earnings announcement and then bought an out-of-the-money (40 delta) call option that was closest to 30-days from expiration, the results were staggering.

    This back-test opens one-day after earnings were announced to try to find a stock that continues an upward trajectory after an earnings rally.

    Simply owning options after earnings, blindly, is likely not a good trade, but hand-picking the times and the stocks to do it in can be useful. We can test this approach without bias with a custom option back-test. Here is the timing set-up around earnings:


    * Condition: Wait for the one-day stock move off of earnings, and if it shows a 3% gain or more in the underlying, then, follow these rules:
    * Open the long at-the-money call one-trading day after earnings.
    * Close the long call 14 calendar days after earnings.
    * Use the options closest to 30 days from expiration (but more than 14 days).

    This is a straight down the middle direction trade -- this trade wins if the stock is continues on an upward trajectory after a large earnings move the two-weeks following earnings and it will stand to lose if the stock does not rise. This is not a silver bullet -- it's a trade that needs to be carefully examined.

    But, this is a conditional back-test, which is to say, it only Triggers if an event before it occurs.

    Since blindly owning calls can be a quick way to lose in the option market, we will apply a tight risk control to this analysis as well. We will add a 40% stop loss and a 40% limit gain.


    In English, at the close of every trading day, if the call is up 40% from the price at the start of the trade, it gets sold for a profit. If it is down 40%, it gets sold for a loss. This also has the benefit of taking profits if there is a stock rally early in the two-week period rather than waiting to close 14-days later.

    Another risk reducing move we made was to use 30-day options and only hold them for 14-days so the trade doesn't suffer from total premium decay.

    If we bought the 40 delta call in Apple Inc (NASDAQ:AAPL) over the last 5-years but only held it after earnings and after an earnings pop higher, we get these results:

    Long 40 Delta Call

    % Wins: 100%
    Wins: 8 Losses: 0
    % Return: 376%

    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).

    Looking at Averages
    The overall return was 376%; but the trade statistics tell us more with average trade results:

    Ô×í The average return per trade was 99.4% over each 13-day period.

    The Great Recession
    We can also test this conditional bullish back-test during the period from 2007-2009.


    Here are those results.

    Long 40 Delta Call

    % Wins: 100%
    Wins: 5 Losses: 4
    % Return: 110%

    Tap Here to See the Back-test

    What Happened
    In a few mouse clicks and about 30 seconds, we identified a pattern that has repeatedly turned a profit over and over again, then displayed those results with no room for confusion or doubt. 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.
    vanzandt and ajacobson like this.