Schlumberger N.V. (NYSE:SLB) : Short-term Option Swing Trading Ahead of EarningsDate Published: 2017-08-12
There is a pattern of bullish momentum in Schlumberger N.V. (NYSE:SLB) stock just days before earnings, and we can track that by looking at swing returns in the option market. This is a short-term swing trade, it won't be a winner forever, and it can be easily derailed by a couple of down days in the market irrespective of Schlumberger N.V. news, but for now it has shown a repeating success that has not only returned 2,514% annualized returns, but has also shown a win-rate of 58%.
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.
That is, totally independent of whether the stocks have a pattern of beating earnings, in the 3-days before earnings, there is a small group that have risen sharply ahead of the actual news. It's essentially bullish optimism in a very short-term window. There has been a way to use a short-term trade and generate profits from this tendency and it does not take earnings risk.
The Short-term Option Swing Trade Ahead of Earnings in Schlumberger N.V.
We will examine the outcome of going long a monthly call option in Schlumberger N.V. just three calendar 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.
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 hold 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.
Below we present the back-test stats over the last three-years in Schlumberger N.V.:
We see a 165.3% return, testing this over the last 12 earnings dates in Schlumberger N.V.. That's a total of just 24 days (2-day holding period for each earnings date, over 12 earnings dates). That's an annualized rate of 2,514%. That's the power of following the short-term pattern of bullishness ahead earnings -- and not taking on the actual risk from the earnings outcome.
This short-term trade hasn't won every time, and it won't, but it has been a winner 7 times and lost 5 times, for a 58% win-rate and again, that 165.3% return in less than one-full month of actual holding period. 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 Schlumberger N.V., but over the recent history, this bullish option trade has won ahead of earnings.
While this strategy has an overall return of 165.3%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 26.93%.
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 77.7% returns, on 3 winning trades and 1 losing trades.
➡ The average percent return over the last year per trade was 19.23%.
Bull markets tend to create optimism, whether it's deserved or not.
The pattern of this bull market reveals a bullish run up before earnings in the very short-term -- independent of the realized earnings result. This has been a tradable phenomenon in Schlumberger N.V.. To see how to test this for any stock we welcome you to watch the demonstration video.